Market Power in Water Markets

Tinbergen Institute Discussion Paper 10-054/1

41 Pages Posted: 29 May 2010

See all articles by Erik Ansink

Erik Ansink

VU University Amsterdam - Department of Spatial Economics

Harold Houba

VU University Amsterdam, Department of Econometrics; VU University Amsterdam, Tinbergen Institute

Date Written: May 25, 2010

Abstract

Water markets with market power are analysed as multi-market Cournot competition in which the river structure constrains access to local markets and limited resources impose capacity constraints. Conditions for uniqueness are identified. Lerner indices are larger under binding resource constraints. The number of cases explodes in the number of local markets. Under quadratic benefit functions and symmetric constant marginal extraction costs, closed-form solutions for selected cases are derived, and numerical implementation through a single optimization program is available. Upstream locations face less competition than downstream. Observed price patterns in the Goulburn-Murray Irrigation District are consistent with the theoretical results.

Keywords: Water markets, oligopoly, market power, Cournot-Walras equilibrium

JEL Classification: C72, C73, Q25

Suggested Citation

Ansink, Erik and Houba, Harold E. D., Market Power in Water Markets (May 25, 2010). Tinbergen Institute Discussion Paper 10-054/1. Available at SSRN: https://ssrn.com/abstract=1617168 or http://dx.doi.org/10.2139/ssrn.1617168

Erik Ansink (Contact Author)

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands

Harold E. D. Houba

VU University Amsterdam, Department of Econometrics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

HOME PAGE: http://personal.vu.nl/h.e.d.houba/

VU University Amsterdam, Tinbergen Institute ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

HOME PAGE: http://personal.vu.nl/h.e.d.houba/

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