Monopoly regulation when customers need to make sunk investments: evidence from the Swedish district heating sector

Darryl Biggar, Matthieu Glachant and Magnus Söderberg
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Darryl Biggar: Australian Competition and Customer Commission (ACCC)

Journal of Regulatory Economics, 2018, vol. 54, issue 1, No 2, 14-40

Abstract: Abstract Regulatory agencies routinely seek to promote price stability. A rationale for this practise might be that regulators seek to protect customers’ relationship-specific sunk investments. We develop a simple model which confirms that commitments to future rigid prices may increase welfare when customers need to make such investments. We use data from the Swedish district heating sector during the 1998–2007 period to explore the impact of monopoly pricing decisions on the take-up rate of district heating.

Keywords: Forward-looking customers; Pricing behaviour; Regulation; District heating; Sweden (search for similar items in EconPapers)
JEL-codes: D42 L51 L52 L97 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s11149-018-9363-0

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