The Pricing Dynamics of Utilities with Underdeveloped Networks
This paper uses an analytically tractable intertemporal framework for analyzing the dynamic pricing of a utility with an underdeveloped network (a typical case in most developing countries) facing a competitive fringe, short-run network adjustment...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2007/04/7524414/pricing-dynamics-utilities-underdeveloped-networks http://hdl.handle.net/10986/7027 |
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okr-10986-70272021-04-23T14:02:33Z The Pricing Dynamics of Utilities with Underdeveloped Networks Chisari, Omar O. Kessides, Ioannis N. BENCHMARK BENCHMARK LEVEL BENCHMARKS COMPETITIVE FRINGE CONNECTIONS CONSUMERS DEMAND FUNCTION DISCOUNT RATE DISECONOMIES OF SCALE DIVIDENDS ECONOMIC EFFICIENCY ELECTRICITY PRODUCTION ELECTRICITY SECTOR EXTERNALITIES FIXED COSTS INCREASING RETURNS INFRASTRUCTURE INDUSTRIES INFRASTRUCTURE SERVICES LOW TARIFFS MARGINAL COST MARGINAL COSTS MARKET STRUCTURE MARKET VALUE MONOPOLY OPTIMIZATION POTENTIAL DEMAND PRICE CONTROLS PRICE INCREASE PRICE INCREASES PRICE LEVEL PRICE LEVELS PRICING POLICY PRIVATIZATION PRODUCT DIFFERENTIATION PRODUCTION FUNCTION PROFIT MAXIMIZATION PUBLIC UTILITY PUBLIC WATER PUBLIC WATER UTILITY REGULATORS REGULATORY AGENCIES REGULATORY GOVERNANCE REGULATORY INTERVENTION REGULATORY MECHANISMS REGULATORY POLICY REGULATORY REGIMES REGULATORY REVIEW REGULATORY ¯ INTERVENTION REGULATORY ¯ ¯ INTERVENTION SERVICE PROVIDERS SHADOW PRICE SHADOW PRICES STATIC ANALYSIS UNIT COST URBAN AREAS URBAN COMMUNITIES UTILITIES UTILITY NETWORKS VARIABLE COST WATER SUPPLY WATER VENDORS This paper uses an analytically tractable intertemporal framework for analyzing the dynamic pricing of a utility with an underdeveloped network (a typical case in most developing countries) facing a competitive fringe, short-run network adjustment costs, theft of service, and the threat of a retaliatory regulatory review that is increasing with the price it charges. This simple dynamic optimization model yields a number of powerful policy insights and conclusions. Under a variety of plausible assumptions (in the context of developing countries) the utility will find its long-run profits enhanced if it exercises restraint in the early stages of network development by holding price below the limit defined by the unit costs of the fringe. The utility's optimal price gradually converges toward the limit price as its network expands. Moreover, when the utility is threatened with retaliatory regulatory intervention, it will generally have incentives to restrain its pricing behavior. These findings have important implications for the design of post-privatization regulatory governance in developing countries. 2012-06-04T18:37:35Z 2012-06-04T18:37:35Z 2007-04 http://documents.worldbank.org/curated/en/2007/04/7524414/pricing-dynamics-utilities-underdeveloped-networks http://hdl.handle.net/10986/7027 English Policy Research Working Paper; No. 4198 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
BENCHMARK BENCHMARK LEVEL BENCHMARKS COMPETITIVE FRINGE CONNECTIONS CONSUMERS DEMAND FUNCTION DISCOUNT RATE DISECONOMIES OF SCALE DIVIDENDS ECONOMIC EFFICIENCY ELECTRICITY PRODUCTION ELECTRICITY SECTOR EXTERNALITIES FIXED COSTS INCREASING RETURNS INFRASTRUCTURE INDUSTRIES INFRASTRUCTURE SERVICES LOW TARIFFS MARGINAL COST MARGINAL COSTS MARKET STRUCTURE MARKET VALUE MONOPOLY OPTIMIZATION POTENTIAL DEMAND PRICE CONTROLS PRICE INCREASE PRICE INCREASES PRICE LEVEL PRICE LEVELS PRICING POLICY PRIVATIZATION PRODUCT DIFFERENTIATION PRODUCTION FUNCTION PROFIT MAXIMIZATION PUBLIC UTILITY PUBLIC WATER PUBLIC WATER UTILITY REGULATORS REGULATORY AGENCIES REGULATORY GOVERNANCE REGULATORY INTERVENTION REGULATORY MECHANISMS REGULATORY POLICY REGULATORY REGIMES REGULATORY REVIEW REGULATORY ¯ INTERVENTION REGULATORY ¯ ¯ INTERVENTION SERVICE PROVIDERS SHADOW PRICE SHADOW PRICES STATIC ANALYSIS UNIT COST URBAN AREAS URBAN COMMUNITIES UTILITIES UTILITY NETWORKS VARIABLE COST WATER SUPPLY WATER VENDORS |
| spellingShingle |
BENCHMARK BENCHMARK LEVEL BENCHMARKS COMPETITIVE FRINGE CONNECTIONS CONSUMERS DEMAND FUNCTION DISCOUNT RATE DISECONOMIES OF SCALE DIVIDENDS ECONOMIC EFFICIENCY ELECTRICITY PRODUCTION ELECTRICITY SECTOR EXTERNALITIES FIXED COSTS INCREASING RETURNS INFRASTRUCTURE INDUSTRIES INFRASTRUCTURE SERVICES LOW TARIFFS MARGINAL COST MARGINAL COSTS MARKET STRUCTURE MARKET VALUE MONOPOLY OPTIMIZATION POTENTIAL DEMAND PRICE CONTROLS PRICE INCREASE PRICE INCREASES PRICE LEVEL PRICE LEVELS PRICING POLICY PRIVATIZATION PRODUCT DIFFERENTIATION PRODUCTION FUNCTION PROFIT MAXIMIZATION PUBLIC UTILITY PUBLIC WATER PUBLIC WATER UTILITY REGULATORS REGULATORY AGENCIES REGULATORY GOVERNANCE REGULATORY INTERVENTION REGULATORY MECHANISMS REGULATORY POLICY REGULATORY REGIMES REGULATORY REVIEW REGULATORY ¯ INTERVENTION REGULATORY ¯ ¯ INTERVENTION SERVICE PROVIDERS SHADOW PRICE SHADOW PRICES STATIC ANALYSIS UNIT COST URBAN AREAS URBAN COMMUNITIES UTILITIES UTILITY NETWORKS VARIABLE COST WATER SUPPLY WATER VENDORS Chisari, Omar O. Kessides, Ioannis N. The Pricing Dynamics of Utilities with Underdeveloped Networks |
| relation |
Policy Research Working Paper; No. 4198 |
| description |
This paper uses an analytically
tractable intertemporal framework for analyzing the dynamic
pricing of a utility with an underdeveloped network (a
typical case in most developing countries) facing a
competitive fringe, short-run network adjustment costs,
theft of service, and the threat of a retaliatory regulatory
review that is increasing with the price it charges. This
simple dynamic optimization model yields a number of
powerful policy insights and conclusions. Under a variety of
plausible assumptions (in the context of developing
countries) the utility will find its long-run profits
enhanced if it exercises restraint in the early stages of
network development by holding price below the limit defined
by the unit costs of the fringe. The utility's optimal
price gradually converges toward the limit price as its
network expands. Moreover, when the utility is threatened
with retaliatory regulatory intervention, it will generally
have incentives to restrain its pricing behavior. These
findings have important implications for the design of
post-privatization regulatory governance in developing countries. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Chisari, Omar O. Kessides, Ioannis N. |
| author_facet |
Chisari, Omar O. Kessides, Ioannis N. |
| author_sort |
Chisari, Omar O. |
| title |
The Pricing Dynamics of Utilities with Underdeveloped Networks |
| title_short |
The Pricing Dynamics of Utilities with Underdeveloped Networks |
| title_full |
The Pricing Dynamics of Utilities with Underdeveloped Networks |
| title_fullStr |
The Pricing Dynamics of Utilities with Underdeveloped Networks |
| title_full_unstemmed |
The Pricing Dynamics of Utilities with Underdeveloped Networks |
| title_sort |
pricing dynamics of utilities with underdeveloped networks |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2007/04/7524414/pricing-dynamics-utilities-underdeveloped-networks http://hdl.handle.net/10986/7027 |
| _version_ |
1764401781491630080 |