Public Utility Pricing for Joint Demand Involving a Durable Good

Gordon Mills

Bell Journal of Economics, 1976, vol. 7, issue 1, 299-307

Abstract: When a utility invests in a large discrete increment of capacity, several years may pass before the additional capacity can be fully used, if the utility's customers need to buy major durable goods to be used jointly with the utility's product. For such a period of adjustment, this study derives price time-paths for the utility for specific models of welfare and (regulated) profit maximization. Among other results, it is shown that if a particular form of price discrimination is permitted, then a stable price level (advocated by some earlier authors) is not optimal.

Date: 1976
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