Private Ownership and Pricing: Evidence from the Swedish District Heating Sector

Erik Lundin ()
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Erik Lundin: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden, https://www.ifn.se/en/researchers/ifn-researcher/erik-lundin/

No 1532, Working Paper Series from Research Institute of Industrial Economics

Abstract: I examine the pricing behavior of municipal and private firms in the unregulated Swedish district heating market, characterized by geographically bounded local monopoly networks. Conditional on exogenous cost factors, private firms charge on average seven percent higher prices compared to their municipal counterparts. Nearly all firms employ two-part pricing. Consistent with standard monopoly theory, the entire price difference can be explained by the fixed price component. Further, foreign-owned private firms charge an additional price premium relative to domestically owned private firms. A descriptive analysis of financial statements confirms that private firms achieve higher profit margins, despite municipal firms being legally required to operate in a business-like manner. These findings demonstrate that, in this market, private firms exercise more market power than public firms, and that the subsequent upward pressure on prices dominates any downward effects from the potential cost efficiencies associated with privatization.

Keywords: Privatization; Two-part pricing; District heating; Natural monopoly; Market power; Network industries (search for similar items in EconPapers)
JEL-codes: L12 L43 L97 P18 Q48 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2025-08-15
New Economics Papers: this item is included in nep-com and nep-reg
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