Water industry in the context of "Public utilities"

⭐ In the context of public utilities, what economic principle primarily explains why industries like the water industry frequently develop into natural monopolies?

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⭐ Core Definition: Water industry

The water industry provides drinking water and wastewater services (including sewage treatment) to residential, commercial, and industrial sectors of the economy. Typically public utilities operate water supply networks. The water industry does not include manufacturers and suppliers of bottled water, which is part of the beverage production and belongs to the food sector.

The water industry includes water engineering, operations, water and wastewater plant construction, equipment supply and specialist water treatment chemicals, among others.

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πŸ‘‰ Water industry in the context of Public utilities

A public utility company (usually just utility) is an organization that maintains the infrastructure for a public service (often also providing a service using that infrastructure). Public utilities are subject to forms of public control and regulation ranging from local community-based groups to statewide government monopolies.

Public utilities are meant to supply goods and services that are considered essential; water, gas, electricity, telephone, waste disposal, and other communication systems represent much of the public utility market. The transmission lines used in the transportation of electricity, or natural gas pipelines, have natural monopoly characteristics. A monopoly can occur when it finds the best way to minimize its costs through economies of scale to the point where other companies cannot compete with it. If the infrastructure already exists in a given area, minimal benefit is gained through competing. In other words, these industries are characterized by economies of scale in production. Though it can be mentioned that these natural monopolies are handled or watched by a public utilities commission, or an institution that represents the government.

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Water industry in the context of Regulated market

A regulated market (RM) or coordinated market is an idealized system where the government or other organizations oversee the market, control the forces of supply and demand, and to some extent regulate the market actions.Β This can include tasks such as determining who is allowed to enter the market and what prices may be charged. The majority of financial markets such as stock exchanges are regulated, whereas over-the-counter markets are usually not at all or only moderately regulated.

One of the reasons for regulation can be the importance of the regulated activity – meaning the harm suffered should the industry fail would be so fatal that regulators (governments, legislators) cannot afford the risk. This includes fields like banking or financial services. Secondly, it is common for some markets to be regulated under the claim that they are natural monopolies, or that a monopoly would very likely appear should there be no regulation. It is crucial to prevent misuse of monopoly power, as this can lead to delivery of poor services with very high prices. This includes for example the telecommunications, water, gas, or electricity supply. Often, regulated markets are established during the partial privatisation of government controlled utility assets.

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Water industry in the context of Water supply network

A water supply network or water supply system is a system of engineered hydrologic and hydraulic components that provide water supply. A water supply system typically includes the following:

  1. A drainage basin (see water purification – sources of drinking water)
  2. A raw water collection point (above or below ground) where the water accumulates, such as a lake, a river, or groundwater from an underground aquifer. Raw water may be transferred using uncovered ground-level aqueducts, covered tunnels, or underground pipes to water purification facilities..
  3. Water purification facilities. Treated water is transferred using water pipes (usually underground).
  4. Water storage facilities such as reservoirs, water tanks, or water towers. Smaller water systems may store the water in cisterns or pressure vessels. Tall buildings may also need to store water locally in pressure vessels in order for the water to reach the upper floors.
  5. Additional water pressurizing components such as pumping stations may need to be situated at the outlet of underground or aboveground reservoirs or cisterns (if gravity flow is impractical).
  6. A pipe network for distribution of water to consumers (which may be private houses or industrial, commercial, or institution establishments) and other usage points (such as fire hydrants)
  7. Connections to the sewers (underground pipes, or aboveground ditches in some developing countries) are generally found downstream of the water consumers, but the sewer system is considered to be a separate system, rather than part of the water supply system.

Water supply networks are often run by public utilities of the water industry.

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Water industry in the context of Nationalized

Nationalization (nationalisation in British English) is the process of transforming privately owned assets into public assets by bringing them under the public ownership of a national government or state. Nationalization contrasts with privatization and with demutualization. When previously nationalized assets are privatized and subsequently returned to public ownership at a later stage, they are said to have undergone renationalization (or deprivatization). Industries often subject to nationalization include telephones, electric power, fossil fuels, iron ore, railways, airlines, media, postal services, banks, and water (sometimes called the commanding heights of the economy), and in many jurisdictions such entities have no history of private ownership.

Nationalization may occur with or without financial compensation to the former owners. Nationalization is distinguished from property redistribution in that the government retains control of nationalized property. Some nationalizations take place when a government seizes property acquired illegally. For example, in 1945 the French government seized the car-maker Renault because its owners had collaborated with the 1940–1944 Nazi occupiers of France.

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Water industry in the context of Industrial gas

Industrial gases are the gaseous materials that are manufactured for use in industry. The principal gases provided are nitrogen, oxygen, carbon dioxide, argon, hydrogen, helium and acetylene, although many other gases and mixtures are also available in gas cylinders. The industry producing these gases is also known as industrial gas, which is seen as also encompassing the supply of equipment and technology to produce and use the gases. Their production is a part of the wider chemical Industry (where industrial gases are often seen as "specialty chemicals").

Industrial gases are used in a wide range of industries, which include oil and gas, petrochemicals, chemicals, power, mining, steelmaking, metals, environmental protection, medicine, pharmaceuticals, biotechnology, food, water, fertilizers, nuclear power, electronics and aerospace. Industrial gas is sold to other industrial enterprises; typically comprising large orders to corporate industrial clients, covering a size range from building a process facility or pipeline down to cylinder gas supply.

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