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An Analysis of Fully Distributed Cost Pricing in Regulated Industries

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  • Ronald R. Braeutigam

Abstract

This paper examines the economic consequences of allocating common costs by (1) gross revenues, (2) directly attributable costs, and (3) relative output levels (such as ton-miles) to determine fully distributed cost prices for regulated firms. The analysis characterizes FDC tariffs by examining the nature of the economic inefficiency associated with the rules and explains how opportunities for entry by unregulated firms might change if Ramsey optional pricing was used instead of FDC pricing.

Suggested Citation

  • Ronald R. Braeutigam, 1980. "An Analysis of Fully Distributed Cost Pricing in Regulated Industries," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 182-196, Spring.
    • Handle: RePEc:rje:bellje:v:11:y:1980:i:spring:p:182-196
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    Citations

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    Cited by:

    1. Müller, Gernot, 2006. "Zur Ökonomie von Trassenpreissystemen," WIK Discussion Papers 279, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    2. Fuliang Chen & Tao Xu, 2013. "A comparative study on Welfare results of nonlinear and linear pricing: based on asymmetric duopoly market," Chapters, in: Michael Faure & Xinzhu Zhang (ed.), The Chinese Anti-Monopoly Law, chapter 6, pages 218-232, Edward Elgar Publishing.
    3. Kopsakangas-Savolainen, Maria, 2004. "The welfare effects of different pricing schemes for electricity distribution in Finland," Energy Policy, Elsevier, vol. 32(12), pages 1429-1435, August.
    4. Evangelinos, Christos, 2013. "Infrastrukturpreise: Eine normativ-theoretische Analyse," Discussion Papers 1/2013, Technische Universität Dresden, "Friedrich List" Faculty of Transport and Traffic Sciences, Institute of Transport and Economics.
    5. Leonard J. Mirman & Dov Samet & Yair Tauman, 1983. "An Axiomatic Approach to the Allocation of a Fixed Cost Through Prices," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 139-151, Spring.
    6. John W. Mayo & David E. M. Sappington, 2016. "Regulation in a ‘Deregulated’ Industry: Railroads in the Post-Staggers Era," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(2), pages 203-227, September.
    7. María Angeles García Valiñas, 2004. "Eficiencia y equidad en el diseño de precios óptimos para bienes y servicios públicos," Hacienda Pública Española / Review of Public Economics, IEF, vol. 168(1), pages 95-119, march.
    8. Chang, Yang-Ming & Warren, John T., 1997. "Allocative efficiency and diversification under price-cap regulation," Information Economics and Policy, Elsevier, vol. 9(1), pages 3-17, March.
    9. Mark L. Burton & David L. Kaserman & John W. Mayo, 2009. "Common Costs And Cross‐Subsidies: Misestimation Versus Misallocation," Contemporary Economic Policy, Western Economic Association International, vol. 27(2), pages 193-199, April.
    10. Jorg Borrmann & Klaus Zauner, 2004. "Cross-subsidization when Firms Are Allowed to make Non-zero Profits," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 11(2), pages 241-247.
    11. Ingo Vogelsang, 1999. "Optimal Price Regulation for Natural and Legal Monopolies," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(1), pages 5-43, January-J.
    12. James Poterba & Julio Rotemberg, 1995. "Environmental taxes on intermediate and final goods when both can be imported," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 221-228, August.
    13. 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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