Nonlinear Prices and the Regulated Firm

Padmanabhan Srinagesh

The Quarterly Journal of Economics, 1986, vol. 101, issue 1, 51-68

Abstract: This paper examines the problem of a regulated utility that sells output according to a nonlinear price schedule. Three results are obtained. First, rate-of-return regulation lowers the price schedule charged by the firm along its entire length. Second, some units of output will always be sold at a marginal price below true marginal cost. Third, a move from linear to nonlinear prices at a given fair rate-of-return can lead to an unambiguous increase in welfare.

Date: 1986
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