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Some Simple Analytics of Peak-Load Pricing

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Author Info
Ted Bergstrom (University of California, Santa Barbara)
Jeffrey Mackie-Mason (University of Michigan)

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Abstract

Consider a public utility that offers its service at two different times. We study the effects of a change from uniform pricing throughout the day to peak-load pricing. We show that for a utility constrained to operate with a fixed rate of return on capital, the introduction of peak-load pricing can plausibly reduce the price of the service it both in peak and off-peak times. We also find that peak-load pricing can lead to either greater or smaller capacity than uniform pricing. We find a simple criterion for determining whether a particular individual gains or loses from peak-load pricing.

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Publisher Info
Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number 1991A.

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Date of creation: 30 Jul 1991
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Handle: RePEc:cdl:ucsbec:1991a

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Related research
Keywords: peak-load pricing; time of day pricing;

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  1. Saravut Yaipairoj & Fotios Harmantzis, 2008. "Achieving low-cost UMTS networks via pricing," Netnomics, Springer, vol. 9(2), pages 105-124, October. [Downloadable!] (restricted)
  2. Ted Bergstrom & Jeff Mackie-Mason, . "The Simple Analytics of Peak-Load Pricing," Papers _035, University of Michigan, Department of Economics. [Downloadable!]
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