The Welfare Analysis of Drinking Water Market Structure with Price Regulation

• Main Authors: Yu-Kun Chen, 陳右坤
• Other Authors: Ming-Feng Hung
• Format: Others
• Language: zh-TW
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/45586876108332039566

碩士 === 淡江大學 === 產業經濟學系 === 92 === This article probes mainly on the influence analysis of drinking water market structure and price regulation to social welfare. As for the market structure regulation part, we divide water market structure vertically into upstream water supply corporation, midstream public transmission department and the downstream distributor. We maintain that upstream water supply corporation and midstream public transmission department are monopoly, but allow for competition between distributors downstream. As for the price regulation part, we analyze the marginal cost pricing, average cost pricing, and Ramsey pricing. We use subgame-perfect Nash equilibrium method to explore the vertical and separate water market. Assume that regulator adopt marginal cost, average cost and Ramsey pricing to control the price, we analyze the following situations separately: First, regulator imposes the price regulation on the public transmission department, Second, regulator both enforces the price regulation on upstream water supply corporation and midstream public transmission department, in the meanwhile, we discuss the effects of different downstream market structures, i.e. monopoly, oligopoly and perfect competition. Thus, we conclude as follows: First, No matter what kind of price regulation the regulator adopts upon the two monopoly firms (upstream and midstream), we know that the social welfare is higher as downstream is under perfect competition than that as downstream is under monopoly or oligopoly. Therefore, the regulation should deregulate, and open up the competition to the downstream of the drinking water market to enhance social welfare. Second, owing to the characteristics of the drinking water market, it must maintain the monopoly of the upstream water supply corporation and the public transmission department. No matter what the regulator adopts marginal cost or Ramsey pricing, the best policy of the regulator is to proceed the price regulation upon the upstream water supply corporation and the public transmission department at the same time. With such regulation, the social welfare is higher than that of the price regulation on single monopoly firm. Third, when the public transmission department enforces average cost pricing regulation, if the fixed cost of the midstream public transmission department is higher than that of the upstream water supply corporation, the regulator may proceed the price regulation upon the upstream water supply corporation which can promote social welfare.