Methods of Price Regulation

Michael Hierzenberger ()

Chapter Chapter 3 in Price Regulation and Risk, 2010, pp 29-44 from Springer

Abstract: Abstract There are essentially two methods for defining fair prices in regulated industries. The first method, known as rate of return regulation, routinely fixes prices in the amount of the actual costs.1,2 The second method, known as RPI-X regulation, defines prices on the basis of a price or profit formula.3 In this case, the price of the current period consists of the price of the previous period subtracted by the mandatory efficiency boosts that take the form of price surcharges and price increases, in order to compensate for the general price escalation.4 In the following, both of these different systems will be defined more carefully. On the basis of the principle agent theory, a statement is made in Sect. 3.2 about which different incentive effects both of these systems have intrinsically for boosting efficiency in providing a service.

Keywords: Regulatory System; Capital Market; Return Regulation; Price Regulation; Price Formula (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1007/978-3-642-12047-3_3

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