Responsive Pricing of Public Utility Services

William Vickrey

Bell Journal of Economics, 1971, vol. 2, issue 1, 337-346

Abstract: Utility prices that are made to respond appropriately to adventitious variations in demand or supply can produce substantial improvement in the efficiency of utilization of utility facilities, raising load factors and lowering average costs. More effective and less disruptive handling of emergency shortages is also facilitated. With telephone service, implementation can be on a virtually instantaneous basis through system monitoring and recorded quotation of currently effective rtes. In situations with a strong element of precommitment to the use of the service, such as airline travel, implementation can be handled through simulating a speculative market in reservations. Motivation for privately owned utilities to maintain service capability at desirable levels can be preserved through establishing fixed retention rates independent of the responsive rates, with revenues in excess of or below the retention rates being paid into or made up out of an escrow fund.

Date: 1971
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