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Nonlinear Pricing and Tariff Differentiation: Evidence from the British Electricity Market

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  • Stephen Davies
  • Catherine Waddams Price
  • Chris M. Wilson

Abstract

Liberalisation of the British household electricity market, in which previously monopolised regional markets were exposed to large-scale entry, is used as a natural experiment on oligopolistic nonlinear pricing. Each oligopolist offered a single two-part electricity tariff, but inconsistent with current theory, the two-part tariffs were heterogeneous in ways that cannot be attributed to explanations such as asymmetric costs or variations in brand loyalty. Instead, the evidence suggests that firms deliberately differentiated their tariff structures, resulting in market segmentation according to consumers’ usage.

Suggested Citation

  • Stephen Davies & Catherine Waddams Price & Chris M. Wilson, 2014. "Nonlinear Pricing and Tariff Differentiation: Evidence from the British Electricity Market," The Energy Journal, , vol. 35(1), pages 57-78, January.
    • Handle: RePEc:sae:enejou:v:35:y:2014:i:1:p:57-78
    DOI: 10.5547/01956574.35.1.4
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    References listed on IDEAS

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    1. Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
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