Abstract
Many people fear that a water market will lead to monopolization, and, for this reason, believe that government should not implement a market. In this chapter, we aim to convince the reader that a water market is unlikely to result in monopolization. We acknowledge that researchers have not fully examined the issue of market power, but we think that problems are likely to be isolated to unusual situations.
This chapter discusses the likely market behavior within a smart market for water, including the chance of price manipulation, market power when the catchment is over-allocated, and market power when the catchment has a single rich bidder. For market participants who feel that they face too much risk, and many of them will, Sect. 10.4 explains how the spot market can lower that risk by enabling a range of financial products. The final two sections discuss effects of limits to water conveyance capacity, and lack of competition through lack of bidding.
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Raffensperger, J.F., Milke, M.W. (2017). Market Behavior. In: Smart Markets for Water Resources. Global Issues in Water Policy, vol 12. Springer, Cham. https://doi.org/10.1007/978-3-319-55008-4_10
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DOI: https://doi.org/10.1007/978-3-319-55008-4_10
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