Monopoly regulation when customers need to make sunk investments: evidence from the Swedish district heating sector

Regulatory agencies routinely seek to promote price stability. A rationale for this practise might be that regulators seek to protect customers’ relationship-specific sunk investments. We develop a simple model which confirms that commitments to future rigid prices may increase welfare when customers need to make such investments. We use data from the Swedish district heating sector during the 1998–2007 period to explore the impact of monopoly pricing decisions on the take-up rate of district heating