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

Reto F�llmi and Urs Meister
Authors registered in the RePEc Author Service: Reto Foellmi

No 115, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: This paper presents an attempt to create competition in the water market by means of direct competition. We argue that the usual liberalisation device, competition for the market by franchise bidding, is problematic due to the particular features of the water industry. Our approach proposes the implementation of product market competition, i.e. competition in the market. In such a situation several water utilities using a single set of pipes compete for customers in the same area. Since the water industry is often characterised by local networks, we consider a simple model, where competition is introduced between vertically integrated, neighbouring water suppliers that connect their networks. 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: D21 L43 L95 Q25 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing (2005)
Working Paper: Product-Market Competition in the Water Industry: Voluntary Nondiscriminatory Pricing (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:115

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