Competition in Local Services – Solid Waste Management

Many natural monopolies are the responsibility of local or municipal governments. Do they have incentives to ensure competition and efficiency in the provision of services under their authority? The answer may depend on central-local government relations and factors such as the size of transfers of funds from central to local government. In most cities, one such natural monopoly is the collection of solid waste from households and small businesses. Because the level of sunk investment in providing these services is limited, they can be purchased through competition for-the-market in the form of competitive tendering. Experience in many cities shows that competitive tendering can yield greater efficiency and lower prices than either self-provision or a regulated monopoly. Competitive tendering is far from straightforward. Attention must be paid to the promoting competition in the bidding process, to the prevention of “hold-up” problems and to maintaining incentives for investment, quality and efficient adjustment of prices over the life of the contract. Competition in the bidding process can be enhanced by careful attention to the specification of the services that are tendered and ensuring that any government-owned firms compete on a level playing field with private firms. Competition law enforcement is essential to prevent bid-rigging and market-sharing agreements. This document comprises proceedings in the original languages of a Roundtable on Competition in Local Services (Solid Waste Management), which was held by the working party No. 2 of the Committee on Competition Law and Policy in October 1999.