Informal Benchmarks as a Source of Regulatory Threat in Unregulated Utility Sectors

Magnus Söderberg

No 2973, CESifo Working Paper Series from CESifo

Abstract: This paper investigates to what extent unregulated local monopolies attempt not to evoke the introduction of a formal price regulation by conforming to customers’ and authorities’ expectations. It is argued that utilities can meet expectations by setting prices that imitate neighbours’ prices. The empirical evaluation rests on a cross-sectional data set representing all Swedish district heating utilities, and on a flexible nonlinear IV specification. It is found that while utilities’ price setting schemes are insensitive to customer complaints, they are significantly influenced by the passive monitoring by authorities. The spillover effect from the 5-6 closest neighbours is around 40 %.

Keywords: regulatory threat; spatial correlation; price; district heating; Sweden (search for similar items in EconPapers)
JEL-codes: L11 L33 L97 (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2973

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