Monopoly Regulation Through Cost-Based Revenue Caps: Employing A Base Year Approach

Gerrit Gräper (gerrit.graeper@uni-kassel.de) and Fabian Mankat (fabian.mankat@uni-kassel.de)
Additional contact information
Gerrit Gräper: University of Kassel, Nora-Platiel-Straße 4, 34127 Kassel, Germany
Fabian Mankat: University of Kassel, Nora-Platiel-Straße 4, 34127 Kassel, Germany

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: This paper studies the pricing incentives of a monopolist constrained by a revenue cap endogenously determined by her costs in a so-called base year. Such regulation is employed, among others, to govern electricity distribution operators in Germany. We show that the revenue cap may incentivize excessive supply in the base year to reap profits in the non-base years. A connected set of price caps exists so that a hybrid regulation consisting of any element in this set and the cost-based revenue cap unambiguously improves welfare and, under some conditions, even leads to the socially optimal outcome.

Keywords: Regulation; Monopoly; Electricity Distribution (search for similar items in EconPapers)
JEL-codes: D21 D42 L12 L51 L94 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2024-02-07
References: Add references at CitEc
Citations:

Downloads: (external link)
https://uni-marburg.de/en/fb02/research-groups/eco ... 24/4-2024-graper.pdf First version (application/pdf)

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:mar:magkse:202404

Access Statistics for this paper

More papers in MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) Contact information at EDIRC.
Bibliographic data for series maintained by Bernd Hayo (hayo@wiwi.uni-marburg.de).