Nonlinear pricing, biased consumers, and regulatory policy

Phuong Ho ()
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Phuong Ho: SNF – Centre for Applied Research at NHH

Journal of Economics, 2023, vol. 138, issue 2, No 4, 149-164

Abstract: Abstract Recent empirical analyses show consumers in electricity and water markets respond to average price rather than marginal price, calling for information provision policies that help correct the consumers’ bias. This paper characterizes the regulated tariff if the regulator is informed about the average-price response of consumers. I find the regulated tariff for biased consumers promotes equity gains by featuring quantity premia and providing access to utility consumption for a larger population than in the world of rational consumers. The world of biased consumers can also yield higher total welfare. These results bring up the opportunity costs of the information provision programs that help consumers correct the bias.

Keywords: Average-price bias; Nonlinear pricing; Price discrimination; Quantity premia; Ramsey pricing (search for similar items in EconPapers)
JEL-codes: D42 D82 D91 L51 L98 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:138:y:2023:i:2:d:10.1007_s00712-022-00812-9

DOI: 10.1007/s00712-022-00812-9

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