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Economies of Vertical Integration in the Japanese Water Supply Industry

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  • Takuya Urakami

Abstract

The merging of some water utilities in Japan has become possible since the 2000 Outline of Administrative Reform and the 2001 Water Act Revision. There are two avenues to merge water utilities, horizontal consolidation and vertical integration. Horizontal consolidation enables water distributors, such as the large water supply systems, to merge into one. Vertical integration enables water distributors and water wholesalers, such as the bulk water supply systems, to merge into one. However, these wide area consolidations or integrations haven't been promoted at local government level due to an absence of authority. Further, promotion has also been hindered by the lack of previous studies to support the economies of wide area consolidations or integrations. This paper focuses especially on the vertical integration between the water intake-purification and water distribution stages. To investigate economies of vertical integration, I estimate translog cost function in the Japanese water supply industry and test the separability hypotheses among water intake, purification and distribution stages. The results show that the economies of vertical integration exist between the water intake-purification and water distribution stages, so that the bulk water supply systems and the large water supply systems will be able to merge in order to achieve greater cost efficiency.

Suggested Citation

  • Takuya Urakami, 2006. "Economies of Vertical Integration in the Japanese Water Supply Industry," ERSA conference papers ersa06p200, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa06p200
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    File URL: https://www-sre.wu.ac.at/ersa/ersaconfs/ersa06/papers/200.pdf
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    References listed on IDEAS

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    Cited by:

    1. Carvalho, Pedro & Marques, Rui Cunha & Berg, Sanford, 2012. "A meta-regression analysis of benchmarking studies on water utilities market structure," Utilities Policy, Elsevier, vol. 21(C), pages 40-49.
    2. Takuya Urakami & David Parker, 2011. "The Effects of Consolidation amongst Japanese Water Utilities," Urban Studies, Urban Studies Journal Limited, vol. 48(13), pages 2805-2825, October.
    3. Saal David S. & Arocena Pablo & Maziotis Alexandros & Triebs Thomas, 2013. "Scale and Scope Economies and the Efficient Vertical and Horizontal Configuration of the Water Industry: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 12(1), pages 93-129, March.
    4. Andrea Guerrini & Giulia Romano & Bettina Campedelli, 2013. "Economies of Scale, Scope, and Density in the Italian Water Sector: A Two-Stage Data Envelopment Analysis Approach," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 27(13), pages 4559-4578, October.
    5. Michael Zschille, 2016. "Cost Structure and Economies of Scale in German Water Supply," Discussion Papers of DIW Berlin 1576, DIW Berlin, German Institute for Economic Research.
    6. Johan WILLNER & Sonja GRÖNBLOM, 2011. "Reforming a network industry: consequences for cost efficiency and welfare," Departmental Working Papers 2011-33, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    7. Anna Bottasso & Maurizio Conti, 2021. "Economie di integrazione verticale ed economie di scopo nel settore idrico e fognario: alcune considerazioni alla luce dell?evidenza empirica internazionale," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2021(3), pages 89-128.
    8. Liu, Junqing & Fukushige, Mototsugu, 2020. "Efficiency and pricing of water supply and sewerage services in Japan," Utilities Policy, Elsevier, vol. 62(C).
    9. Urakami, Takuya & Saal, David S. & Nieswand, Maria, 2021. "Industry Fragmentation and Wastewater Efficiency: A Case Study of Hyogo Prefecture in Japan," ADBI Working Papers 1218, Asian Development Bank Institute.

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