Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/95638
Authors: 
Lundin, Erik
Year of Publication: 
2013
Series/Report no.: 
IFN Working Paper 998
Abstract: 
This study provides the first empirical test of strategic interactions in the pricing decisions of regulated utilities. Since publicly owned water utilities in Sweden are governed by a cost-of-service regulation, prices in neighboring municipalities should not affect the own price other than through spatially correlated cost factors. In contrast, spatial dependence is pronounced. This behavior can be explained in terms of an informal yardstick competition: When consumers use neighboring utilities' prices as benchmarks for costs or as behaviorally based reference prices, utilities will face the risk of consumer complaints and successive regulatory reviews if deviating too much from neighbors' prices.
Subjects: 
yardstick competition
spatial econometrics
public economics
utilities
JEL: 
D4
L1
L5
L9
Document Type: 
Working Paper

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