This article examines a novel regulatory mechanism in a setting with multiple local monopolists. The mechanism rests upon the behavioral assumption that customers form opinions about prices by comparing them with prices set by nearby monopolies and that this comparison influences their behavior. In this way, an “implicit yardstick competition” emerges among monopolists although they do not operate in the same markets. We test this mechanism using a unique dataset of unregulated district heating monopolists in Sweden. We find a large effect of neighbors’ prices, which indicates that the implicit yardstick competition has a considerable disciplining effect on monopolies’ pricing behavior. © 2022 The Author(s)