Consumer awareness as a complement to regulation
Network industries, such as electricity and water distribution, are typically seen to require regulation to prevent excessive pricing. But new research shows how consumer awareness can also create competitive pressure among local network owners. Using a unique data set on publicly-owned water utilities in Sweden, the study finds that utilities set prices similar to those in neighboring networks despite the absence of alternative suppliers for consumers. Moreover, this “price mimicking” behavior is more pronounced in municipalities where local policy makers run a higher risk of being voted out of office.
By Erik Lundin