The Simple Analytics of Peak-Load Pricing

Ted Bergstrom () and Jeffrey Mackie-Mason

Papers from University of Michigan, Department of Economics

Abstract: Consider a public utility that offers its service at two different times. We study the effects of a change from uniform pricing throughout the day to peak-load pricing. We show that for a utility constrained to operate with a fixed rate of return on capital, the introduction of peak-load pricing can plausibly reduce the price of the service *both* in peak and off-peak times. We also find that peak-load pricing can lead to either greater or smaller capacity than uniform pricing. We find a simple criterion for determining whether a particular individual gains or loses from peak -load pricing.

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Published in the Rand Journal, 1991

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