The Simple Analytics of Peak-Load Pricing
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 *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.
|Date of creation:|
|Publication status:||published in the Rand Journal, 1991|
|Contact details of provider:|| Postal: Ann Arbor Mi, 48109|
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Web page: http://www.econ.lsa.umich.edu/
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- Elizabeth E. Bailey & Lawrence J. White, 1974.
"Reversals in Peak and Offpeak Prices,"
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- John T. Wenders, 1976. "Peak Load Pricing in the Electric Utility Industry," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 232-241, Spring.
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