Price regulation for waste hauling franchises in California: an examination of how regulators regulate pricing and the effects of competition on regulated markets
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Price regulation for waste hauling franchises in California: an examination of how regulators regulate pricing and the effects of competition on regulated markets

  • Author(s): Seltzer, Steven A.
  • Advisor(s): Kantor, Shawn E.
  • et al.
Abstract

In over 80% of California cities, waste disposal services are provided by private companies operating under monopoly franchises granted to them by local jurisdictions. In all cases, the franchise-granting entity � usually a city � sets waste disposal prices. This dissertation examines the methods used by cities to set prices, the motivation of city/regulators in using these particular methods, whether these methods are successful in keeping prices close to marginal costs and � when they are not successful � why this is so. What will be shown is that in setting prices, cities seldom use competitive bidding. Instead, cities have developed a complex set of metrics and algorithms to routinely adjust prices, which are termed �price adjustment systems.� Using a model based on the work of Stigler and Peltzman, it will be argued that these price adjustment systems are not examples of �regulatory capture� but instead reflect the actions of a benign regulator endeavoring to align prices as closely as possible to the franchisee's costs. Finally, commercial waste disposal prices set by cities will be compared to those set in competitive markets. It will be further argued that the wide variation in franchised commercial pricing, relative to market rates, correlates with the competitive waste hauling environment in the area where the franchise-granting city is located. The more competitors that are present, the lower the rates. In other words, even regulated markets can be �contestable� in the Baumolian sense, and as in competitive markets, the presence of potential competitors has the effect of minimizing prices.

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