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Nonlinear Prices and the Regulated Firm

Padmanabhan Srinagesh^1,2

¹ Williams College · ² University of Illinois Chicago

This paper examines the problem of a regulated utility that sells output according to a nonlinear price schedule. Three results are obtained. First, rate-of-return regulation lowers the price schedule charged by the firm along its entire length. Second, some units of output will always be sold at a marginal price below true marginal cost. Third, a move from linear to nonlinear prices at a given fair rate-of-return can lead to an unambiguous increase in welfare.

DOI

10.2307/1884641

Volume

101 (1)

Pages

51

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