The welfare impacts of discriminatory price tariffs

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Abstract

This paper examines the use of asymmetric tariffs as a regulatory instrument. A monopoly setup is adopted in which the firm sells in two markets but price controls are introduced in just one. The regulator’s objective is to increase consumer welfare through this price discriminatory practice, with the firm operating under a profit constraint. We consider cases where consumer welfare in the two markets is weighted both equally and unequally and also cases where the cost of supplying the two retail markets is determined in a monopsonistic input market. The results suggest that in certain situations controlling prices in only one market could be a desirable option from a welfare perspective.
Original languageEnglish
Pages (from-to)321-331
Number of pages11
JournalEnergy Economics
Volume71
DOIs
Publication statusPublished - 11 Mar 2018

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Profitability
Costs
Tariffs
Consumer welfare
Market price
Retail market
Price controls
Monopoly
Profit

Keywords

  • monopoly
  • asymmetric regulation
  • tariffs
  • welfare

Cite this

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title = "The welfare impacts of discriminatory price tariffs",
abstract = "This paper examines the use of asymmetric tariffs as a regulatory instrument. A monopoly setup is adopted in which the firm sells in two markets but price controls are introduced in just one. The regulator’s objective is to increase consumer welfare through this price discriminatory practice, with the firm operating under a profit constraint. We consider cases where consumer welfare in the two markets is weighted both equally and unequally and also cases where the cost of supplying the two retail markets is determined in a monopsonistic input market. The results suggest that in certain situations controlling prices in only one market could be a desirable option from a welfare perspective.",
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The welfare impacts of discriminatory price tariffs. / Danias, Nikolaos; Swales, J. Kim.

In: Energy Economics, Vol. 71, 11.03.2018, p. 321-331.

Research output: Contribution to journalArticle

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AB - This paper examines the use of asymmetric tariffs as a regulatory instrument. A monopoly setup is adopted in which the firm sells in two markets but price controls are introduced in just one. The regulator’s objective is to increase consumer welfare through this price discriminatory practice, with the firm operating under a profit constraint. We consider cases where consumer welfare in the two markets is weighted both equally and unequally and also cases where the cost of supplying the two retail markets is determined in a monopsonistic input market. The results suggest that in certain situations controlling prices in only one market could be a desirable option from a welfare perspective.

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