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Market power in water markets

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  • Ansink, Erik
  • Houba, Harold

Abstract

We model market power in water markets as multi-market Cournot competition with a river structure. Suppliers are connected through water balances, which imposes resource constraints, and they are connected to heterogeneous water users via a water delivery infrastructure. Our model captures a wide range of specific water market structures. We establish conditions for existence of an equilibrium and we assess the effects of market power on water extraction, delivery, and water prices. Although the monopoly case is similar to standard economic theory, three other specific water market structures illustrate that standard intuition has to be revisited.

Suggested Citation

  • Ansink, Erik & Houba, Harold, 2012. "Market power in water markets," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 237-252.
    • Handle: RePEc:eee:jeeman:v:64:y:2012:i:2:p:237-252
    DOI: 10.1016/j.jeem.2011.10.002
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    Cited by:

    1. Houba, Harold & van der Laan, Gerard & Zeng, Yuyu, 2014. "Asymmetric Nash Solutions in the River Sharing Problem," Strategic Behavior and the Environment, now publishers, vol. 4(4), pages 321-360, December.
    2. Harold Houba & Françeska Tomori, 2023. "Stackelberg Social Equilibrium in Water Markets," Games, MDPI, vol. 14(4), pages 1-9, July.
    3. Ricardo Martinez & Juan D. Moreno-Ternero, 2024. "Fair allocation of riparian water rights," Papers 2407.14623, arXiv.org.
    4. Michler, Jeffrey D. & Wu, Steven Y., 2020. "Governance and contract choice: Theory and evidence from groundwater irrigation markets," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 129-147.
    5. Françeska Tomori & Erik Ansink & Harold Houba & Nick Hagerty & Charles Bos, 2024. "Market power in California's water market," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(3), pages 1274-1299, May.
    6. Ansink, Erik & Houba, Harold, 2016. "Sustainable agreements on stochastic river flow," Resource and Energy Economics, Elsevier, vol. 44(C), pages 92-117.
    7. Aneel Karnani & Brent McFerran & Anirban Mukhopadhyay, 2016. "The Obesity Crisis as Market Failure: An Analysis of Systemic Causes and Corrective Mechanisms," Journal of the Association for Consumer Research, University of Chicago Press, vol. 1(3), pages 445-470.
    8. Elham Erfanian & Alan R. Collins, 2017. "Charges for Water and Access: What Explains the Differences in West Virginia Municipalities?," Working Papers Working Paper 2017-02, Regional Research Institute, West Virginia University.
    9. Erik Ansink & Harold Houba, 2014. "The Economics of Transboundary River Management," Tinbergen Institute Discussion Papers 14-132/VIII, Tinbergen Institute.
    10. Elham Erfanian & Alan R. Collins, 2018. "Charges for Water and Access: What Explains the Differences Among West Virginian Municipalities?," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(04), pages 1-27, October.
    11. Athanasios Tsiarapas & Zisis Mallios, 2023. "Estimating the long-term impact of market power on the welfare gains from groundwater markets," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 25(3), pages 377-406, July.
    12. Fabien Martinez, 2015. "A Three-Dimensional Conceptual Framework of Corporate Water Responsibility," Post-Print hal-02887624, HAL.
    13. Tomori, Françeska & Ansink, Erik & Houba, Harold & Hagerty, Nick & Bos, Charles, 2021. "Market power in California’s water market," Working Papers 2072/534854, Universitat Rovira i Virgili, Department of Economics.
    14. Jingjing Wang & Xiaoyang Wang, 2023. "Why is water illiquid?: The NQH2O water index futures," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(1), pages 602-621, March.
    15. Ellen M. Bruno & Richard J. Sexton, 2020. "The Gains from Agricultural Groundwater Trade and the Potential for Market Power: Theory and Application," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 884-910, May.
    16. Bruno, Ellen M. & Sexton, Richard J., 2017. "The Impacts of Market Power in Agricultural Groundwater Markets," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258434, Agricultural and Applied Economics Association.
    17. Adriana V. Madzharov & Suresh Ramanathan & Lauren G. Block, 2016. "The Halo Effect of Product Color Lightness on Hedonic Food Consumption," Journal of the Association for Consumer Research, University of Chicago Press, vol. 1(4), pages 579-591.
    18. Abraham, Anand & Ramachandran, Parthasarathy, 2021. "The welfare implications of transboundary storage and dam ownership on river water trade," Mathematical Social Sciences, Elsevier, vol. 109(C), pages 18-27.

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    More about this item

    Keywords

    Water markets; Oligopoly; Market power; Cournot–Walras equilibrium;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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