Pricing Dynamics of Network Utilities in Developing Countries

Omar Chisari and Ioannis Kessides

Review of Network Economics, 2009, vol. 8, issue 3, 21

Abstract: This paper examines the pricing of a utility with an underdeveloped network facing a competitive fringe, short-run network adjustment costs, theft of service, and the threat of retaliatory government intervention that is increasing with the price it charges. Under a variety of plausible assumptions (in the context of developing countries) the utility will find its long-run profits enhanced if it exercises pricing restraint in the early stages of network development. These findings provide some useful insights for the design of post-privatization regulatory governance in developing countries where years of price controls have contributed to choking off investment in network expansion.

Date: 2009
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DOI: 10.2202/1446-9022.1177

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