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The Pricing Dynamics of Utilities With Underdeveloped Networks / Kessides, Ioannis N.
World Bank Open Knowledge Repository (formerly "World Bank E-Library Publications") Available online
View online- Format:
- Book
- Government document
- Author/Creator:
- Kessides, Ioannis N.
- Series:
- Policy research working papers.
- World Bank e-Library.
- Language:
- English
- Subjects (All):
- Choice.
- Consumers.
- Costs.
- Debt Markets.
- Demand.
- Discount Rate.
- Diseconomies of Scale.
- E-Business.
- Economic Efficiency.
- Economic Theory and Research.
- Emerging Markets.
- Finance and Financial Sector Development.
- Financial Literacy.
- Incentives.
- Investment.
- Low Tariffs.
- Macroeconomics and Economic Growth.
- Marginal Costs.
- Markets and Market Access.
- Monopoly.
- Optimization.
- Prices.
- Pricing.
- Private Sector Development.
- Profit Maximization.
- Profits.
- Urban Water Supply and Sanitation.
- Utility.
- Variables.
- Water Supply and Sanitation.
- Welfare.
- Local Subjects:
- Choice.
- Consumers.
- Costs.
- Debt Markets.
- Demand.
- Discount Rate.
- Diseconomies of Scale.
- E-Business.
- Economic Efficiency.
- Economic Theory and Research.
- Emerging Markets.
- Finance and Financial Sector Development.
- Financial Literacy.
- Incentives.
- Investment.
- Low Tariffs.
- Macroeconomics and Economic Growth.
- Marginal Costs.
- Markets and Market Access.
- Monopoly.
- Optimization.
- Prices.
- Pricing.
- Private Sector Development.
- Profit Maximization.
- Profits.
- Urban Water Supply and Sanitation.
- Utility.
- Variables.
- Water Supply and Sanitation.
- Welfare.
- Physical Description:
- 1 online resource (28 pages)
- Place of Publication:
- Washington, D.C., The World Bank, 2007
- System Details:
- data file
- Summary:
- This paper uses an analytically tractable intertemporal framework for analyzing the dynamic pricing of a utility with an underdeveloped network (a typical case in most developing countries) facing a competitive fringe, short-run network adjustment costs, theft of service, and the threat of a retaliatory regulatory review that is increasing with the price it charges. This simple dynamic optimization model yields a number of powerful policy insights and conclusions. Under a variety of plausible assumptions (in the context of developing countries) the utility will find its long-run profits enhanced if it exercises restraint in the early stages of network development by holding price below the limit defined by the unit costs of the fringe. The utility's optimal price gradually converges toward the limit price as its network expands. Moreover, when the utility is threatened with retaliatory regulatory intervention, it will generally have incentives to restrain its pricing behavior. These findings have important implications for the design of post-privatization regulatory governance in developing countries.
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