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A Mathematical Formulation of the Peak-Load Pricing Problem


  • Israel Pressman


This paper formulates peak-load pricing problems using mathematical micromodels. The optimal strategy chosen for the public utility is that of maximizing the social satisfaction derived from services provided. The notion of consumers' surplus is used, and period demands are assumed to be both independent and dependent. The case of dependent demands, a heretofore unsolved problem, is handled using the line-integral calculus. Several specific models are analyzed, with both capacity constraints and profit constraints being considered. In some models it is shown that prices should depend on marginal operating costs but not on marginal capacity costs. Trade-offs between these marginal costs are explored in the peak-load pricing context. In other models the relationships of price with both demand elasticities and marginal costs are developed. Several of the existing peak-load pricing models of the literature can be shown to be subcases of models developed herein.

Suggested Citation

  • Israel Pressman, 1970. "A Mathematical Formulation of the Peak-Load Pricing Problem," Bell Journal of Economics, The RAND Corporation, vol. 1(2), pages 304-326, Autumn.
  • Handle: RePEc:rje:bellje:v:1:y:1970:i:autumn:p:304-326

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    References listed on IDEAS

    1. Westfield, Fred M, 1971. "Methodology of Evaluating Economic Regulation," American Economic Review, American Economic Association, vol. 61(2), pages 211-217, May.
    2. MacAvoy, Paul W, 1971. "The Regulation-Induced Shortage of Natural Gas," Journal of Law and Economics, University of Chicago Press, vol. 14(1), pages 167-199, April.
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    Cited by:

    1. Basso, Leonardo & Zhang, Anming, 2006. "Peak-Load Pricing In A Vertical Setting: The Case Of Airports And Airlines," 47th Annual Transportation Research Forum, New York, New York, March 23-25, 2006 208029, Transportation Research Forum.
    2. J. Salerian, 1992. "The Application of a Temporal Price Allocation Model to Time-of-Use Electricity Pricing," Economics Discussion / Working Papers 92-11, The University of Western Australia, Department of Economics.
    3. Aliaga Lordemann, Javier, 2009. "Energy Technology Assessment," Documentos de trabajo 8/2009, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    4. Böckers, Veit & Haucap, Justus & Jovanovic, Dragan, 2013. "Diskriminierende Gebotsbeschränkungen im deutschen Großhandelsmarkt für Strom: Eine wettbewerbsökonomische Analyse," DICE Ordnungspolitische Perspektiven 52, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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