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Monopolistic Provision of Congested Service with Incentive-Based Allocation of Priorities

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  • Viswanathan, Nagarathnam
  • Tse, Edison T S

Abstract

Quality of service in a congested service system is dependent on the capacity level, as well as demand. With heterogeneity in consumer preferences for quality, an incentive-based priority service can increase the surplus to the consumer, as well as to the producer, and can reduce the capacity reserve requirement. Introduction of priorities essentially internalizes the negative externality due to congestion and thus leads to the above beneficial effects. Electric power supply is used as the illustrative application and reliability of service becomes the service-quality attribute in that context. Copyright 1989 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Viswanathan, Nagarathnam & Tse, Edison T S, 1989. "Monopolistic Provision of Congested Service with Incentive-Based Allocation of Priorities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 153-174, February.
    • Handle: RePEc:ier:iecrev:v:30:y:1989:i:1:p:153-74
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    Cited by:

    1. Bernard, Jean-Thomas & Roland, Michel, 2000. "Load management programs, cross-subsidies and transaction costs: the case of self-rationing," Resource and Energy Economics, Elsevier, vol. 22(2), pages 161-188, May.
    2. Todd Strauss & Shmuel Oren, 1993. "Priority Pricing of Interruptible Electric Service with an Early Notification Option," The Energy Journal, , vol. 14(2), pages 175-196, April.
    3. Matsukawa, Isamu, 2006. "Regulating a Monopoly Offering Priority Service," MPRA Paper 991, University Library of Munich, Germany.
    4. Isamu Matsukawa, 2009. "Regulatory effects on the market penetration and capacity of reliability differentiated service," Journal of Regulatory Economics, Springer, vol. 36(2), pages 199-217, October.

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