Fine Tuning Regulated Telephone Prices

State public service commissions (PSCs) regulate many rates for local telephone companies. The rates are calculated to return a predetermined revenue stream. However, rounding errors in the computational procedure often produce rates that either generate too much revenue or do not generate the full...

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Bibliographic Details
Published in:Interfaces (Providence) 1996-05, Vol.26 (3), p.26-34
Main Author: Munson, Charles L
Format: Article
Language:English
Subjects:
Applications
Business structures
Case studies
Computer systems
Industrial sectors
industries: communications
Integer programming
Integers
Investment return rates
Operations research
pricing, regulatory
programming, integer: applications
Rate setting
Revenue
State regulation
Statistical data
Telephone companies
Telephone lines
Telephones
Towns
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Summary:State public service commissions (PSCs) regulate many rates for local telephone companies. The rates are calculated to return a predetermined revenue stream. However, rounding errors in the computational procedure often produce rates that either generate too much revenue or do not generate the full authorized revenue. Most PSCs allowed Contel Telephone Company to adjust certain rates by a nickel to address this problem. A trial-and-error approach to nickel adjusting, while helping the situation, was often time-consuming and still left the full revenue potential unrealized. I developed a one-constraint binary integer program that eliminated this annoying predicament.
ISSN:0092-2102
2644-0865
1526-551X
2644-0873
DOI:10.1287/inte.26.3.26