Mixture and Distribution of Different Water Qualities: An Experiment on Alternative Scenarios Concerning Vertical Structure in a Complex Market

LINEEX Working Paper No. 12/00

56 Pages Posted: 6 Feb 2001  

Nikolaos Georgantzis

Laboratori d'Economia Experimental (LEE); LINEEX and University Jaume I of Castellon

Aurora García-Gallego

Universitat Jaume I

Enrique Fatas

University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS); University of Valencia - LINEEX

Praveen Kujal

Universidad Carlos III de Madrid - Department of Economics

Tibor Neugebauer

University of York - Derwent College

Abstract

We set up a model of water management, which is inspired by the possibility of mixing water of different qualities. Water is supplied to two types of consumers with different preferences for water quality and quantity. A distributional knot may exist which optimally distributes the supplied water in the downstream market. Different scenarios compare experimentally the advantages of a centralized versus a decentralized resource management. We conducted experiments with 14 markets in three different settings, labelled as "upstream monopoly", "upstream duopoly" and "duopoly-monopsony". We find that a two-product monopoly performs better than the duopoly regarding social welfare and volatility with respect to prices and production. Especially, the centralization of information enhances learning in the market considered. An interesting observation is that monopolistic subjects post much lower price offers at the outset of the experiment than duopolists do. However, in the course of the experiment production is lower and prices are higher in the monopolistic structure. In the duopoly-monopsony case, monopsonistic subjects failed to exercise market power and market prices did not reflect correctly the differences in qualities. Nevertheless, increased upstream competition and downstream market power helped to mitigate the waste of resources in the economy.

Keywords: Water Management, Experimental Economics, Vertical Structure

JEL Classification: C9,D4,L1,Q2

Suggested Citation

Georgantzis, Nikolaos and García-Gallego, Aurora and Fatas, Enrique and Kujal, Praveen and Neugebauer, Tibor, Mixture and Distribution of Different Water Qualities: An Experiment on Alternative Scenarios Concerning Vertical Structure in a Complex Market. LINEEX Working Paper No. 12/00. Available at SSRN: https://ssrn.com/abstract=258917 or http://dx.doi.org/10.2139/ssrn.258917

Nikolaos Georgantzis (Contact Author)

Laboratori d'Economia Experimental (LEE) ( email )

Campus Riu Sec
Castellón, 12071
Spain
0034964729212 (Phone)
0034964728591 (Fax)

HOME PAGE: www.lee.uji.es

LINEEX and University Jaume I of Castellon ( email )

Department of Economics
Campus Riu Sec
12080 Castellon
Spain
+34 964 728588 (Phone)
+34 964 728591 (Fax)

Aurora García-Gallego

Universitat Jaume I ( email )

Campus del Riu Sec
Castellón, 12071
Spain

Enrique Fatas

University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS) ( email )

United Kingdom

University of Valencia - LINEEX ( email )

Campus Tarongers
E-46022 Valencia
Spain
+34.963.828.643 (Phone)
+963.828.415 (Fax)

Praveen Kujal

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34-91 6249651 (Phone)
+34-91 6249875 (Fax)

HOME PAGE: http://www.eco.uc3m.es/english/staff/contact_info/

Tibor Neugebauer

University of York - Derwent College ( email )

Heslington
York YO10 5DD
United Kingdom

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