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Peak-Load Pricing with Continuous and Interdependent Demand

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  • Burness, H Stuart
  • Patrick, Robert H

Abstract

Issues concerning time-of-use pricing with continuous and interdependent demand are examined in a context where increasing marginal costs of production, as opposed to capacity constraints, provide the major incentive for flattening the load curve. The analysis develops the underlying consumer preferences sufficient to insure a continuously varying load curve and generalizes previous considerations of the peak load pricing problem by simultaneously considering continuous and interdependent demand in determining optimal prices and pricing period lengths. A profit incentive for time-of-use pricing as a form of price discrimination is revealed, which is tempered as substitution across pricing periods allows limited intertemporal arbitrage. The profit incentive leads a price-regulated firm, ceteris paribus, to choose a peak pricing period longer than the social optimum. Copyright 1991 by Kluwer Academic Publishers

Suggested Citation

  • Burness, H Stuart & Patrick, Robert H, 1991. "Peak-Load Pricing with Continuous and Interdependent Demand," Journal of Regulatory Economics, Springer, vol. 3(1), pages 69-88, March.
  • Handle: RePEc:kap:regeco:v:3:y:1991:i:1:p:69-88
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    Cited by:

    1. Robert H. Patrick & Frank A. Wolak, 2001. "Estimating the Customer-Level Demand for Electricity Under Real-Time Market Prices," NBER Working Papers 8213, National Bureau of Economic Research, Inc.
    2. María Angeles García Valiñas, 2004. "Eficiencia y equidad en el diseño de precios óptimos para bienes y servicios públicos," Hacienda Pública Española, IEF, vol. 168(1), pages 95-119, march.
    3. Joan Calzada, 2007. "Capacity-based versus time-based access charges in telecommunications," Journal of Regulatory Economics, Springer, vol. 32(2), pages 153-172, October.
    4. Tanaka, Makoto, 2006. "Real-time pricing with ramping costs: A new approach to managing a steep change in electricity demand," Energy Policy, Elsevier, vol. 34(18), pages 3634-3643, December.
    5. Joan Calzada Aymerich, 2003. "Access by Capacity and Peak-Load Pricing," Working Papers in Economics 108, Universitat de Barcelona. Espai de Recerca en Economia.
    6. Skiera, Bernd & Spann, Martin, 1999. "The ability to compensate for suboptimal capacity decisions by optimal pricing decisions," European Journal of Operational Research, Elsevier, vol. 118(3), pages 450-463, November.
    7. Richard Arnott, 1992. "Information and Usage of Congestible Facilities Under Free Access," Discussion Papers 974, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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