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Tighter Average Revenue Regulation Can Reduce Consumer Welfare

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  • Law, Peter J

Abstract

A monopolist producing for two markets is subject to an average revenue constraint, a form of regulation which is relevant to some U.K. utilities. Where marginal costs of serving the two markets differ, tighter regulation may cause one of the prices to rise as shown by I. Bradley and C. Price (1988). A simple linear example demonstrates that total consumer surplus may fall as regulation becomes more stringent. Copyright 1995 by Blackwell Publishing Ltd.

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  • Law, Peter J, 1995. "Tighter Average Revenue Regulation Can Reduce Consumer Welfare," Journal of Industrial Economics, Wiley Blackwell, vol. 43(4), pages 399-404, December.
    • Handle: RePEc:bla:jindec:v:43:y:1995:i:4:p:399-404
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    Cited by:

    1. Söderberg, Magnus & Vesterberg, Mattias, 2023. "How demand uncertainty influences electricity network prices under revenue-cap regulation: The case of Sweden," Energy Economics, Elsevier, vol. 127(PB).
    2. Ramirez, Jose Carlos & Rosellon, Juan, 2002. "Pricing natural gas distribution in Mexico," Energy Economics, Elsevier, vol. 24(3), pages 231-248, May.
    3. Breton, Michèle & Kharbach, Mohammed, 2012. "Transportation and storage under a dynamic price cap regulation process," Energy Economics, Elsevier, vol. 34(4), pages 918-929.
    4. Anne Neumann & Juan Rosellón & Hannes Weigt, 2015. "Removing Cross-Border Capacity Bottlenecks in the European Natural Gas Market—A Proposed Merchant-Regulatory Mechanism," Networks and Spatial Economics, Springer, vol. 15(1), pages 149-181, March.
    5. Kang, Jaesung & Weisman, Dennis L. & Zhang, Mingyuan, 2000. "Do consumers benefit from tighter price cap regulation?," Economics Letters, Elsevier, vol. 67(1), pages 113-119, April.
    6. Lantz, Björn, 2008. "Hybrid revenue caps and incentive regulation," Energy Economics, Elsevier, vol. 30(3), pages 688-695, May.
    7. Juan Rosellón, 1998. "Price and Rate Regulations for the Mexican Natural Gas Industry: Comments on Policy Decisions," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(2), pages 267-308, July-Dece.
    8. Chun-Hung Chen & Ting-Kun Liu, 2008. "Tighter Price Cap Regulation on Consumer Surplus and Utility," Economics Bulletin, AccessEcon, vol. 12(37), pages 1-8.
    9. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.

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