This paper investigates the market structure of the water sector in Portugal through the application of distinct methods usually used in the literature (parametric and nonparametric methods). A sample of Portuguese water utilities was used to search for economies of scale and economies of scope in the period 2002–2008. High economies of vertical integration, economies of scale and economies of scope (both in the provision of water supply and wastewater services) were found. Therefore, there are advantages in water utilities merging by joining the retail and wholesale components and the water and wastewater services. The results show that amalgamation in the Portuguese water sector should be encouraged, creating vertically integrated water and wastewater utilities to supply more than 16 mm3/year of drinking water, corresponding to about 120,000 customers.

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