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Suggestions for a Game-Theoretic Approach to Public Utility Pricing and Cost Allocation

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  • W.W. Sharkey

Abstract

The purpose of this article is to define and discuss cross subsidization in pricing from a game-theoretic perspective. Cross subsidization may be said to exist when one group of customers pays more than they would if served by a separate firm producing exclusively for their demands. Previous game-theoretic approaches have considered primarily the properties of the cost function. This article discusses the reasons demand must be included in the analysis and suggests two possible ways of doing so. In the context of one general model, a number of sufficient conditions for the existence of subsidy-free prices are derived.

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  • W.W. Sharkey, 1982. "Suggestions for a Game-Theoretic Approach to Public Utility Pricing and Cost Allocation," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 57-68, Spring.
    • Handle: RePEc:rje:bellje:v:13:y:1982:i:spring:p:57-68
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    Cited by:

    1. Povilas Lastauskas, 2013. "Europe’s Revolving Doors: Import Competition and Endogenous Firm Entry InstitutionS," Cambridge Working Papers in Economics 1360, Faculty of Economics, University of Cambridge.
    2. David Encaoua & Michel Moreaux, 1987. "L'analyse théorique des problèmes de tarification et d'allocation des coûts dans les télécommunications," Revue Économique, Programme National Persée, vol. 38(2), pages 375-414.
    3. Mark A. Jamison, 2011. "Liberalization and Regulation of Telecoms, Electricity, and Gas in the United States," Chapters, in: Matthias Finger & Rolf W. Künneke (ed.), International Handbook of Network Industries, chapter 21, Edward Elgar Publishing.
    4. Massol, Olivier & Tchung-Ming, Stéphane & Banal-Estañol, Albert, 2015. "Joining the CCS club! The economics of CO2 pipeline projects," European Journal of Operational Research, Elsevier, vol. 247(1), pages 259-275.
    5. Steve Parsons, 2002. "Laffont and Tirole's Competition in Telecommunications : A View From the US," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(3), pages 419-436.
    6. Massol, O. & Tchung-Ming, S., 2012. "Joining the CCS Club! Insights from a Northwest European CO2 Pipeline Project," Working Papers 12/10, Department of Economics, City University London.
    7. Wayne Y. Lee & Anjan V. Thakor, 1982. "Optimal Regulatory Pricing Under Asymmetric Cost Information," Discussion Papers 580, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Jamison, Mark A., 1996. "General conditions for subsidy-free prices," Journal of Economics and Business, Elsevier, vol. 48(4), pages 371-385, October.
    9. G. Knieps & H. Sommer, 1988. "Kostenaufteilung bei Mehrzweckprojekten," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 124(II), pages 151-174, June.
    10. Massimo Marinacci & Luigi Montrucchio, 2003. "Ultramodular functions," ICER Working Papers - Applied Mathematics Series 13-2003, ICER - International Centre for Economic Research.
    11. Massimo Marinacci & Luigi Montrucchio, 2005. "Ultramodular Functions," Mathematics of Operations Research, INFORMS, vol. 30(2), pages 311-332, May.

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