Journal Article The Optimality of Pure Competition in the Capacity Problem: Further Comment Get access Michael A. Crew Michael A. Crew Carnegie-Mellon University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 83, Issue 2, May 1969, Pages 341–343, https://doi.org/10.2307/1883090 Published: 01 May 1969

This paper is concerned with an extension of the theory of peak load or joint product pricing. It is prompted by a recent paper by Turvey (1968) and by Marshall's (1920) early analysis of joint product pricing. Both of these authors hint at solutions to a joint product or peak load problem that have not been discussed in the major contributions on peak load pricing (Steiner 1957; Williamson 1966). Both Williamson and Steiner recognize the existence of a class of peak load situations which Steiner calls the "firm peak" case. These occur where it is not possible in the off peak period to fully utilize capacity even when a price equal to marginal running cost is charged.1 This corresponds to Marshall's "valueless straw case." When the straw is worthless, farmers concentrate on the production of a crop which has a larger proportion of ears to straw. Corresponding to this process is a firm peak situation where a public utility would install different kinds of facilities in order to vary its production methods so as to reduce the costs of servicing the peak loads. Empirical evidence of this can be noted in the electricity supply industry's production techniques, which consist of employing plants that have different cost characteristics according to their role in meeting demand. This was noted by Turvey whose paper throws some light on the problems of an electricity supply industry in meeting demand. Although Turvey does not explicitly state what are optimal peak load prices when an industry uses more than one kind of plant to meet its peak loads, he hints that prices equal to marginal running cost are somehow relevant. Turvey criticizes the assumption of constant marginal running costs and constant incremental capacity costs as "too simple a notion to be meaningful." He then notes that, for an electricity system consisting of plants differing in age, location, and type (and therefore also running costs), the system marginal running cost curve is upward sloping. He goes on to say: "The first consequence of