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Monopoly regulation when customers need to make sunk investments: evidence from the Swedish district heating sector

Author

Listed:
  • Darryl Biggar

    (Australian Competition and Customer Commission (ACCC)
    Australian Energy Regulator (AER))

  • Matthieu Glachant

    (PSL University)

  • Magnus Söderberg

    (University of Southern Denmark)

Abstract

Regulatory agencies routinely seek to promote price stability. A rationale for this practise might be that regulators seek to protect customers’ relationship-specific sunk investments. We develop a simple model which confirms that commitments to future rigid prices may increase welfare when customers need to make such investments. We use data from the Swedish district heating sector during the 1998–2007 period to explore the impact of monopoly pricing decisions on the take-up rate of district heating.

Suggested Citation

  • Darryl Biggar & Matthieu Glachant & Magnus Söderberg, 2018. "Monopoly regulation when customers need to make sunk investments: evidence from the Swedish district heating sector," Journal of Regulatory Economics, Springer, vol. 54(1), pages 14-40, August.
    • Handle: RePEc:kap:regeco:v:54:y:2018:i:1:d:10.1007_s11149-018-9363-0
    DOI: 10.1007/s11149-018-9363-0
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    Cited by:

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    2. Bonev, Petyo & Glachant, Matthieu & Söderberg, Magnus, 2020. "Testing the regulatory threat hypothesis: Evidence from Sweden," Resource and Energy Economics, Elsevier, vol. 62(C).
    3. Collan, Mikael & Savolainen, Jyrki & Lilja, Emma, 2022. "Analyzing the returns and rate of return regulation of Finnish electricity distribution system operators 2015–2019," Energy Policy, Elsevier, vol. 160(C).
    4. Bonev, Petyo & Matthieu Glachant & Magnus Söderberg, 2020. "Implicit Yardstick Competition," Economics Working Paper Series 2009, University of St. Gallen, School of Economics and Political Science.
    5. Biggar, Darryl, 2022. "Seven outstanding issues in energy network regulation," Energy Economics, Elsevier, vol. 115(C).
    6. Egüez, Alejandro, 2021. "District heating network ownership and prices: The case of an unregulated natural monopoly," Utilities Policy, Elsevier, vol. 72(C).
    7. Egüez, Alejandro, 2020. "Ownership and district heating prices: The case of an unregulated natural monopoly," Umeå Economic Studies 980, Umeå University, Department of Economics.
    8. Biggar, Darryl & Söderberg, Magnus, 2020. "Empirical analysis of how political ideology and ownership influence price stability in the Swedish district heating market," Energy Policy, Elsevier, vol. 145(C).

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    More about this item

    Keywords

    Forward-looking customers; Pricing behaviour; Regulation; District heating; Sweden;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General

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