Pricing and Price Regulation, Volume 34

Introduction. The Basic Pricing Model.Special pricing rules: Objectives and constraints. Normative optimum theory. Positive optimum theory. Normative piecemeal theory. Positive piecemeal theory. Normative Theory. Pricing Policies for Welfare Maximization. A. Basic Rules. Marginal-cost pricing. Ramsey pricing. Pricing with distributional aims. Adjustment to private monopolistic pricing. B. Intermediate Goods. Optimal pricing of publicly supplied intermediate goods. C. Adjustment to Rationed Markets. Rationed labor market. Capacity limits of public transportation. D. Time-Dependent Pricing. Pricing through time and adjustment clauses. Peak-load pricing. E. Pricing When Quality Matters. Different approaches toward optimal quality.Positive Theory. Pricing Policies for Political and Bureaucratic Aims. Winning votes. Minimizing price indices. Maximizing budgets. Maximizing output or revenue, saving energy. The influence of unions. Quality in positive-theory models. A set of axioms for prices to achieve a fair allocation of costs. Price Regulation. A. Can Welfare-Optimal Prices be Achieved by Simple Rules? Regulating marginal-cost prices. Regulating Ramsey prices. B. Practical Regulatory Constraints. Rate-of-return regulation. Price-cap regulation. C. The New Economics of Price Regulation. The principal-agent framework. Asymmetric information on costs. Asymmetric information on demand. Soft budget constraints. Non-linear pricing. Positive theory of price regulation. D. Regulation Through Competition. Mixed markets. Appendices. List of Symbols. References. Author Index. Subject Index.

This clear, precisely written text presents an important branch of the modern, micro-economically based theory of industrial organization and of public finance, utilizing calculus only.

Answers are provided to some pertinent economic questions, such as the pricing policies of vote-seeking politicians, of empire-building bureaucrats and of out-put-maximizing and energy-saving public utilities. These policies are compared with the welfare economic benchmark rules e.g. on marginal cost pricing and Ramsey pricing. Great significance is attached to price regulation.

The book elucidates the recent replacement of rate of return regulation by price-cap regulation. It also explains why many simple rules like yardstick regulation fail to achieve optimal prices, which shows how complicated it is to induce managers to truthfully reveal their private information. How this can be achieved properly is shown in various principal-agent models on regulation with uncertain costs, uncertain demand and with soft budget constraints.