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Do Markets Reduce Prices?

Numéro: 2012-7

Do Markets Reduce Prices?
Simon Porcher (IAE Paris)
Abstract: This paper looks at the reasons for and the results of the make-or-buy decisions in local public services, with specific regards to its possible effects on price and other performance determinants. It uses a rich city-level dataset of water utilities in France for several years.
We find evidence that private management is associated with higher prices on average ceteris paribus. This pattern is consistent with the study of units switching from an organization to another. We find that municipalities switching from public to private management face increased price but the effect is not always significant. Our results also show that switching from private to public management does not always foster decreasing prices. We finally discuss several reasons for the price gap between public and private management using extra samples. We also present some methodological implications for researchers working on the link between organization and efficiency.

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