How Far Does Economic Theory Explain Competitive Nonlinear Pricing in Practice?
Code:
09-07
Authors:
Davies, S., Waddams Price, C. & Wilson, CM.
Date:
01 Jul 2009
Abstract
How Far Does Economic Theory Explain Competitive Nonlinear Pricing in Practice?
By Davies, S., Waddams Price, C. & Wilson, CM.
Abstract: Liberalisation of the British electricity market, in which previously monopolised regional markets were exposed to large-scale entry, is used to assess the propositions of recent theory on oligopolistic nonlinear pricing. Consistent with the theory, each oligopolist offered a single two-part electricity tariff, but inconsistent with the theory, we show that the two-part tariffs are heterogeneous in ways that cannot be attributed to asymmetric costs or variations in brand loyalty or market frictions. Instead, we present evidence to suggest that firms differentiated their tariff structures with the result of segmenting the market according consumers’ usage patterns.
