Competition in the water industry

The paper discusses competition in the water industry in the UK, with the focus on product-market competition. Water has traditionally been seen as an industry characterized by regional or local natural monopoly, with franchising and contracting out, yardstick competition, and capital market competition being feasible, but not direct competition. Policy proposals for (I) inset appointments, (ii) common carriage, and (iii) cross-border competition are assessed. The effect of potential competition from inset appointments has been the introduction of quantity discounts for large users. In practice, the threat of competition is likely to make tariffs more cost-reflective, and there will probably be little effect on average tariff levels.