Modifying the RPI‐X Regulatory System to Include Profit‐sharing

Robert Fraser

Australian Economic Papers, 1998, vol. 37, issue 4, 372-382

Abstract: This paper aims to contribute to the economic theory of RPI‐X (price‐cap) regulatory systems which include profit‐sharing between a company and its customers. The particular focus is on whether profit‐sharing can be introduced in an investment‐neutral manner, and on whether there is scope to choose a profit‐sharing system which maximises the expected customer rebate. Using a model of a company choosing optimal capacity in the face of uncertain demand and subject to price‐cap regulation, it is shown that the potential exists for profit‐sharing to be investment‐neutral, and it is suggested that the expected customer rebate is maximised for an investment‐neutral system which is effectively a cap on profits at a specified level.

Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:bla:ausecp:v:37:y:1998:i:4:p:372-382

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