Monopoly Pricing as a Consumer Exaction in the Public Utility Sector

A bstract . The many studies on the measurement of deadweight welfare loss due to monopoly pricing have largely ignored the public utility sector of the economy. For the residential customer class in the municipally-owned water industry , the useable formula for the welfare loss triangle depends on the divergence between price and long run marginal cos and the price elasticity of demand Only price is directly observable. Statistical methodology developed here and elsewhere provides unique estimates of marginal cost and elasticity for each utility. The welfare loss, as a percentage of the residential customer class's annual water bill, is 9 to 10 per cent for locally regulated water utilities and 5 to 6 per cent for state regulated utilities–a level above those reported in most of the studies on manufacturing industries. Regulation , however, can make a difference.