Peak-Load Pricing of Telephone Calls

Stephen Littlechild

Bell Journal of Economics, 1970, vol. 1, issue 2, 191-210

Abstract: Because of the complex network structure of a telephone system, it is not immediately apparent what constitutes the marginal cost of a telephone call. This paper develops a mathematical programming model based upon the maximization of producers' plus consumers' surplus subject to capacity constraints for each item of equipment at each time of day. An optimal peak-load pricing (and investment) structure results from the Kuhn-Tucker conditions: namely, that the price of a call is set equal to the sum of the marginal opportunity costs (given by the dual variables) of the capacities utilized. The model is illustrated using cost and demand data relevant to a simple network centered on Chicago, and suggests that present prices are considerably above marginal costs, especially on long-distance, high-density routes.

Date: 1970
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://links.jstor.org/sici?sici=0005-8556%2819702 ... O%3B2-L&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rje:bellje:v:1:y:1970:i:autumn:p:191-210

Ordering information: This journal article can be ordered from
https://editorialexp ... i-bin/rje_online.cgi

Access Statistics for this article

More articles in Bell Journal of Economics from The RAND Corporation
Bibliographic data for series maintained by ().