Market power in water markets

We model market power in water markets as multi-market Cournot competition with a river structure. Suppliers are connected through water balances, which imposes resource constraints, and they are connected to heterogeneous water users via a water delivery infrastructure. Our model captures a wide range of specific water market structures. We establish conditions for existence of an equilibrium and we assess the effects of market power on water extraction, delivery, and water prices. Although the monopoly case is similar to standard economic theory, three other specific water market structures illustrate that standard intuition has to be revisited. © 2011 Elsevier Inc.