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Product-Market Competition in the Water Industry: Voluntary Nondiscriminatory Pricing

Reto Foellmi () and Urs Meister

No 32, Working Papers from University of Zurich, Institute for Strategy and Business Economics (ISU)

Abstract: Since franchise bidding in the piped water industry is problematic due to extensive investment requirements, product-market competition or common carriage is a valuable alternative for the introduction of competition. This paper analyses product-market competition by considering a simple model of interconnection where competition is introduced between vertically integrated neighbouring water suppliers. The model contains water markets specificities such as local and decentralised networks and related difficulties of regulating access charges. Even without any regulation, we show that: (i) An inefficient incumbent will give up its monopoly position and lower the access price far enough so that the low-cost competitor can enter his home market. (ii) Efficiency of production will rise due to liberalisation. (iii) In contrary to prejudicial claims, investment incentives are not destroyed by the introduction of competition. Investments of low-cost firms may even increase.

Keywords: Product-Market Competition; Water; Nondiscriminatory pricing (search for similar items in EconPapers)
JEL-codes: L95 L43 D21 Q25 (search for similar items in EconPapers)
Date: 2004
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Published in: Journal of Industry, Competition and Trade 5(2), 115-135, 2005

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Journal Article: Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing (2005) Downloads
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