The complete incremental cost test for cross-subsidies with a sub-modular cost function |
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Authors: | Edward S Pearsall |
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Institution: | (1) Departement of Mathematics and Computer Sciences, Faculty of Sciences, MACS Group. AFACS UFR, Moulay Ismail University, Meknes, Morocco |
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Abstract: | The complete Incremental Cost Test for cross-subsidies can be difficult to apply to a multi-product enterprise because every
possible subset of products must be tested. However, this combinatorial problem can be avoided when the enterprise’s cost
function is sub-modular by identifying the smallest subset of products causing the maximum cross-subsidy. This subset contains
all of the products, and only those products, that are responsible for the cross-subsidies left by a stipulated set of prices.
In addition, the subset can often be identified with a simple and efficient Myopic Algorithm. The algorithm should be particularly
useful as a method for detecting cross-subsidies in regulated enterprises and networks because the cost functions for these
industries are typically sub-modular. |
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Keywords: | |
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