Does market concentration affect prices in the urban water industry?

Abstract

Abstract. This paper analyzes the relationship between market concentration in the private segment of the water industry and water prices with a sample of municipalities located in the Southern Spanish region of Andalusia. In doing so, several Heckman sample selection models are estimated with the main finding being that market concentration increases the price of water for residential use charged by private companies. The main policy recommendation is that urban water service privatization must be accompanied by the appropriate regulatory and institutional frameworks to promote competition among businesses and monitor water pricing.

Urban Water Tariffs in Spain: What Needs to Be Done?

“…The differences in the cost of water resource abstraction, purification techniques of raw water, the distance to the place of water supply, or the type of wastewater treatment may explain the differences in prices charged to the user. However, there is also evidence that differences in water prices in Spain can be explained in part by the ideology of the political party in the local government [34,36], the type of management (public or private) [25,26], and the level of market concentration in the industry [28].…”

Spain

“…On the one hand, some previous studies have detected higher price levels under private provision (Martínez-Espiñeira et al 2009). Similarly, Bel et al (2015) found that private firms with a larger market share set higher water prices. On the other hand, some studies conclude that public management does not necessarily lead to lower prices.…”

“…Moreover, Spanish water industry is highly concentrated. Aqualia and Aguas de Barcelona are the two main private operators 9 (García-Valiñas et al 2013;González-Gómez et al 2014;Bel et al 2015).…”

The costs of corporatization: Analysing the effects of forms of governance

“…Finally, empirical research on another type of service, public water, has delved further into this issue. According to Bel et al (2015), public corporations with private participation in the Spanish water industry are characterized by relatively high service prices, in comparison to classic externalization initiatives. They argue that when local governments exert more direct control over service management in institutional public-private partnerships, it becomes more difficult to determine the quantity and quality of water services, leading to higher costs and ultimately higher prices for the consumer.…”