Fair competition in the refuse collection market?

Abstract

We estimate whether fair competition exists for tendering refuse collection in the Netherlands. The results indicate that concentration increases prices and offsets the advantage of contracting out. The presence of competing public firms might be essential to ensure fair competition.

Notes

¹ The Herfindahl index is the sum of the squared market shares. The C3-ratio the sum of the market shares of the three largest companies.

² Due to (past) Dutch legislation there is some evidence that the relevant market is the province. Till recently the market was regulated on a provincial level.

³ Note that factor prices are not included as no reason is present why they should differ between municipalities. We only present the estimations for the exogenous market factors. Results for other variables are available upon request.

⁴ As a starting point we include only municipalities within a distance of 15 miles. As the Netherlands is densely populated this means that the average municipality has 6 municipalities within this distance. Substituting this distance for 25 miles does not influence the conclusions.

⁵ As the estimations are in logs the effect can be calculated using e^x  − 1. Note that this effect has to be multiplied by 2.5 as collection costs are on average 40% of total costs.

⁶ Substitution for the C4-ratio does not change the results significantly.

⁷ We can not estimate the effect of private collection when no competitors are present in the neighbourhood as we have not enough observations for this variable.

⁸ We tested for spatial autocorrelation as the neighbourhood effect might result from a process where municipalities look at the costs of neighbours before they decide on their own costs. Comparing Moran's I for different subsamples leads to the conclusion that spatial autocorrelation does not drive our results. Statistics are available upon request.

⁹ Estimation of separate models for small and large municipalities reveals that the concentration effect on costs especially exists in larger municipalities. For instance, the coefficient for C _I is negative at 99% significance for large municipalities and insignificant for small municipalities.