Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/331360 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
IFN Working Paper No. 1532
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
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.
Subjects: 
Privatization
two-part pricing
district heating
natural monopoly
market power
network industries
JEL: 
L12
L43
P18
L97
Q48
Document Type: 
Working Paper

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