2017

Price Mimicking under Cost-of-Service Regulation: The Swedish Water Sector

Reprint No. 2017:65

Author(s): Erik LundinYear: 2017 Title: Journal of Regulatory Economics Volume (No.): 52 (3) Pages: 313–332
Online article (restrictions may apply)

Price Mimicking under Cost-of-Service Regulation: The Swedish Water Sector Erik Lundin


This study provides an empirical test of price mimicking among publicly owned water utilities. Using a fixed effects spatial Durbin model with data from Swedish municipalities during 2002–2012, I estimate the elasticity of the own relative to neighbors’ average price to 0.14. This behavior can be explained in terms of an informal yardstick competition: when consumers use neighboring municipalities’ prices as benchmarks for costs or as behaviorally based reference prices, policy makers will face the risk of consumer complaints and reduced voter support if deviating too much from neighboring municipalities’ prices. Further, I find some evidence that price mimicking is more pronounced in municipalities where voter support for the ruling coalition is weak.


Reference:
Lundin, Erik (2017), "Price Mimicking under Cost-of-Service Regulation: The Swedish Water Sector". Journal of Regulatory Economics 52(3), 313–332.

Erik Lundin

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