Peak Load Pricing: Who Should Pay?

Abstract

There is a surprising lack of congruity between the A-J literature and the peak load pricing literature. Much of the A-J literature assumes increasing returns to scale. This can be contrasted with the theory of peak-load pricing, which focuses on the case of decreasing turns to scale. This paper extends the theory of peak load pricing by considering the case where the average variable cost curve initially exhibits increasing returns to scale. The principal result is that off-peak users should rarely shoulder the burden of capacity costs.

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