Economies of vertical integration in the Japanese water supply industry

摘要

This paper focuses particularly on vertical integration between the water intake-purification and water distribution stages. In order to investigate the economies of vertical integration, I estimated the translog cost function in the Japanese water supply industry and calculated the economies of vertical integration between the water intake-purification and water distribution stages, directly following the separability assumptions. Furthermore, the purchased water ratio was also taken into account when calculating the economies of vertical integration. The results show that economies of vertical integration exist between the water intake-purification and water distribution stages, particularly in the case of lower purchased water ratios.