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A Mechanism for Institutionalised Threat of Regulation: Evidence from the Swedish District Heating Market

Petyo Bonev, Matthieu Glachant and Magnus Söderberg

No 1805, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: This is the first study that uses a natural experiment to test the Regulatory Threat Hypothesis. We use a unique novel dataset on unregulated Swedish local district heating monopolists and a new measure of threat - customer complaints. Our results support the Regulatory Threat Hypothesis: firms reduce prices when they feel threatened by price regulation. We also find evidence that (otherwise unrelated) monopolists homogenize locally prices to reduce complaints and thus to reduce threat of regulation. This mechanism is related to Yardstick competition and to behavioral theories of fair pricing.

Keywords: Regulatory Threat; Monopoly; Price Setting; Spatial Interaction; Natural Experiment (search for similar items in EconPapers)
JEL-codes: L11 L12 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2018-05
New Economics Papers: this item is included in nep-ene, nep-eur, nep-ind, nep-mkt, nep-reg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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