Pricing Dynamics of Network Utilities in Developing Countries

This paper examines the pricing of a utility with an underdeveloped network facing a competitive fringe, short-run network adjustment costs, theft of service, and the threat of retaliatory government intervention that is increasing with the price it charges. Under a variety of plausible assumptions...

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Bibliographic Details
Main Authors: Chisari, Omar, Kessides, Ioannis N.
Format: Journal Article
Language:EN
Published: 2012
Subjects:
Online Access:http://hdl.handle.net/10986/5524
Description
Summary:This paper examines the pricing of a utility with an underdeveloped network facing a competitive fringe, short-run network adjustment costs, theft of service, and the threat of retaliatory government intervention that is increasing with the price it charges. Under a variety of plausible assumptions (in the context of developing countries) the utility will find its long-run profits enhanced if it exercises pricing restraint in the early stages of network development. These findings provide some useful insights for the design of post-privatization regulatory governance in developing countries where years of price controls have contributed to choking off investment in network expansion.