Study on the Market Power in Water Rights Market

When a market participant who initially holds a large proportion of available permits in water rights market would be expected to behave as a monopolist. This paper offers an analytical model of water rights markets in with a large number of regulated users participate, and derives formulae that estimate the degree of market distortion. It shows the entire dependence of the ratio of market prices to competitive levels on the rights initial distribution as well as the existence of a threshold for effective market power. Furthermore, the model author derived yields formulae that estimate how much right prices in such distorted markets depart from competitive levels. These findings not only show the significance of initial allocation of water rights but also are available for water rights transaction.