Water and monopoly
Why is water supply often a natural monopoly? Hint: it has something to do with the pipes.
User Contributions (0)
Ask a Question
Sometimes it is just overregulation. A few years ago some professor from Brussels told me that cable internet is a natural monopoly. I told him that in Sofia (Bulgaria) you have a choice between 5-6 different internet or cable TV providers, no monopoly at all (internet is fast and cheap). He was shocked.
BTW, this is a text from the president of Estonia about his experience with telecom:
Five years ago, when I moved from one Tallinn apartment to another, I called the telephone company to install an internet connection. The woman at the other end of the phone asked which time that afternoon – 1400, 1600 or 1730 – would be most convenient to come and install it? Three years ago, after being elected to the European Parliament I applied for an internet connection for my Brussels apartment. After seven weeks with no sign of it, I called my landlord, who had kindly offered to help out if I ran into any problems with the local bureaucracy. “Only seven weeks?“ was her response. She then added something especially funny for anyone from the post-communist world: “But maybe I can help, I have a connection on the inside“.
Generally correct, but remember that most water utilities have BOTH a natural monopoly (cost of the network) and a legal monopoly (right to serve homes). The latter one is not necessary and can be counterproductive, if it prevents, e.g., a kiosk from selling better QUALITY water in an area with poor water supplies. Also note that some parts of the water biz are being opened to competition, e.g., http://www.aguanomics.com/2012/06/breaking-vertical-monopolies.html
Is this not incomplete given the routing and space costs? (Maybe you mean to include those in the "cost of the pipe" but the issue is more than just "cost".)
For example, there are parts of Seattle metro (and I imagine other places) where regardless of money spent, there is not SPACE to run more than one set of water pipes. Also, on the other end, the water sources (rivers, aquifiers, etc.) are limited and it turns out that (unlike electricity or cable TV) there's a "natural monopoly" associated with control of watersheds of various sorts.
An additional weirdness is how is water related to sewer? In Seattle metro, they are part of the same bill, and we pay more for sewer than we do for water - in fact, even if you could somehow gather all of the water you used as rainwater (which might be technically illegal by the way) you'd still have quite bill you'd be required to pay. Part of this arises from large concentrations of people in relatively small areas with important ecosystems nearby.
Libertarian leaning free-market fan that I am, it's not clear to me how a competitive market can work in these constrained circumstances, given population density above a certain threshold.