Dynamic Pricing under Static Regulation:The Case of UBP
Traditional utilities face a dynamic and increasingly competitive environment. Economists have long argued for the benefits of competition in terms of improved efficiency. To obtain these benefits, however, it is important not only that companies change their approach to selling products but also that regulation changes. In this paper, we argue that current forms of regulation—rate-of-return (ROR) and price-cap (PCR)—are based on static foundations that are ill-suited to the situation of consumers and industries facing significant dynamic changes. Our approach is illustrative and intended to encourage further thought on the nature of regulatory institutions under conditions of dynamic change.
KeywordsExpense Toll Stake Undercut Monopoly
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