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Journal of Industry, Competition and Trade

, Volume 5, Issue 2, pp 115–135 | Cite as

Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing

  • Reto Foellmi
  • Urs Meister
Article

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; and (iii) in contrary to prejudicial claims, investment incentives are not destroyed by the introduction of competition for the market. Investments of low-cost firms may even increase.

Keywords

product-market competition water industry nondiscriminatory pricing 

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Copyright information

© Springer Science + Business Media, Inc. 2005

Authors and Affiliations

  1. 1.Institute for Empirical Research in EconomicsUniversity of ZurichZürichSwitzerland
  2. 2.Institute for Strategy and Business AdministrationUniversity of ZurichZürichSwitzerland

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