Price differentials in a homogenous product market: The case of water

This paper examines the existing price differentials for raw water along the Rio Grande. An extremely active spot market for this good, more than 926 transactions have been made over a five-year time period. Statistical analysis shows a significant difference between the price paid for water by irrigators or municipalities and industry. Even if price differentials did exist at the beginning, convergence would be expected over time for this homogenous good. However, statistical analysis shows no sign of convergence. Investigations have suggested that differentials may continue to exist due not to the lack of information, but to misinformation.