Peak-load pricing in duopoly |
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| Institution: | 1. Kyung Hee University, Republic of Korea;2. KISDI (Korea Information Society Development Institute), Republic of Korea;3. University of Otago, New Zealand;4. University of Newcastle, Australia;1. University of Warsaw, Faculty of Economic Sciences, Poland; University of Illinois, Urbana, IL 61801-3671, United States;2. University of Illinois, Regional Economics Applications Laboratory, Urbana, IL 61801-3671, United States;1. Department of Economics, Chuo University, 742-1 Higashi-Nakano, Hachioji, Tokyo 192-0393, Japan;2. Department of Applied Mathematics, University of Pécs, Ifúság, u. 6, H-7624 Pécs, Hungary |
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| Abstract: | In this paper, we consider peak-load pricing by duopolists that maximize profit (not social welfare). We compare price levels and profits across peak-load versus uniform pricing regimes. Our main result is that the introduction of peak-load pricing can plausibly reduce prices by making price competition more severe and thereby reducing profits. This result suggests that competing firms may engage in collusion by not committing to peak-load pricing. Therefore, from the regulator's perspective, it will be desirable to encourage firms to engage in peak-load pricing to intensify competition. |
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