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Efficient Intertemporal Utility Pricing under Uncertainty

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  • L. Dean Hiebert

    (Illinois State University, Normal, IL, USA)

Abstract

Electric utilities today face increasing competition from substitutes for utility-generated power. As a result, utilities are being forced to reevaluate their pricing policies to address competition from other fuels and potential customer 'bypass' of the utility. This paper extends the analysis of second-best utility pricing to explicitly account for both the short- and long-run price responses of customers with competitive alternatives to utility-generated power. The presence of long-run substitution opportunities reduces the optimal percentage mark-up of price over marginal cost for noncore customers. Uncertainty concerning the substitution response of noncore electricity customers also tends to reduce the optimal price mark-up. © 1997 John Wiley & Sons, Ltd.

Suggested Citation

  • L. Dean Hiebert, 1997. "Efficient Intertemporal Utility Pricing under Uncertainty," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(4), pages 329-334.
    • Handle: RePEc:wly:mgtdec:v:18:y:1997:i:4:p:329-334
    DOI: 10.1002/(SICI)1099-1468(199706)18:4<329::AID-MDE829>3.0.CO;2-L
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