Regulation Part 1

Pagina 1

1 ENERGY ECONOMICS 08 - 12 April 2016 REGULATION – part 1 2 Summary REGULATION BY A FULLY INFORMED REGULATOR.................................................................................. 3 SECOND BEST ........................................................................................................................................ 4 SINGLE PRODUCT CONTEXT ............................................................................................................. 4 MULTIPRODUCT CONTEXT: OPTIMAL LINEAR PRICING (RAMSEY-BOITEUX PRICING) .................. 4 DEMSETZ: COMPETITION for the MARKET (1968) ............................................................................. 6 FIRST BEST .............................................................................................................................................. 7 LINEAR PRICING: SUBSIDIES ............................................................................................................... 7 NON-LINEAR PRICING: TWO PART TARIFF ......................................................................................... 7 NON-LINEAR PRICING: PEAK-LOAD PRICING................................................................................... 10 THIRD DEGREE PRICE DISCRIMINATION .............................................................................................. 13 3 REGULATION BY A FULLY INFORMED REGULATOR Much of the traditional theoretical literature on price regulation of natural monopolies assumes that there is a legal monopoly providing one or more services and a regulatory agency whose job it is to set prices. The regulated firm has natural monopoly characteristics and it is assumed to minimize costs giv en technology, input prices and output levels (i.e. no X-inefficiency).…