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On Setting Prices and Testing Cross-Subsidy with Accounting Data

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  • Bradley, Michael D
  • Colvin, Jeff
  • Panzar, John C

Abstract

Regulators are often faced with the challenge of both setting efficient prices and avoiding cross subsidy. Successful implementation of these goals requires estimates of both marginal costs and incremental costs. We present a methodology for estimating both marginal and incremental costs for postal products. The proposed algorithms combine micro-unit accounting data and econometric estimation of the cost structure. We apply the methodology to the U.S. Postal Service and produce estimates of marginal and incremental costs for eighteen postal products and incremental costs for another four groups of products. Copyright 1999 by Kluwer Academic Publishers

Suggested Citation

  • Bradley, Michael D & Colvin, Jeff & Panzar, John C, 1999. "On Setting Prices and Testing Cross-Subsidy with Accounting Data," Journal of Regulatory Economics, Springer, vol. 16(1), pages 83-100, July.
    • Handle: RePEc:kap:regeco:v:16:y:1999:i:1:p:83-100
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    Cited by:

    1. Michael D. Bradley & Jeff L. Colvin & Norma B. Nieto & Daniel J. Tobias, 2010. "Estimating the impact of a uniform price rule in a liberalized postal environment: the case of the United States Postal Service," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Heightening Competition in the Postal and Delivery Sector, chapter 13, Edward Elgar Publishing.
    2. Chattopadhyay, Pradip, 2007. "Testing viability of cross subsidy using time-variant price elasticities of industrial demand for electricity: Indian experience," Energy Policy, Elsevier, vol. 35(1), pages 487-496, January.
    3. Michael D. Bradley & Jeff Colvin & Mary K. Perkins, 2013. "What’s past is prologue: understanding developments in North American postal markets," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Reforming the Postal Sector in the Face of Electronic Competition, chapter 23, pages 336-349, Edward Elgar Publishing.
    4. Margaret Cigno & Diane Monaco & Edward S. Pearsall, 2010. "An operational measure of the cost of universal service as cross- subsidy," Chapters, in: Michael A. Crew & Paul R. Kleindorfer (ed.), Heightening Competition in the Postal and Delivery Sector, chapter 12, Edward Elgar Publishing.
    5. Chattopadhyay, Pradip, 2004. "Cross-subsidy in electricity tariffs: evidence from India," Energy Policy, Elsevier, vol. 32(5), pages 673-684, March.
    6. Otero, Jesus & Waddams Price, Catherine, 2001. "Incumbent and entrant response to regulated competition: signaling with accounting costs and market prices2," Journal of Economics and Business, Elsevier, vol. 53(2-3), pages 209-223.

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