The welfare impacts of discriminatory price tariffs

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, w...

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Bibliographic Details
Published in:Energy economics 2018-03, Vol.71, p.321-331
Main Authors: Danias, Nikolaos, Swales, J. Kim
Format: Article
Language:English
Subjects:
Asymmetric regulation
Energy economics
Markets
Monopolies
Monopoly
Price regulations
Prices
Pricing
Studies
Tariffs
Wage & price controls
Welfare
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Summary: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. •Analysis of asymmetric price controls in profit-constrained markets•The impact of partial compared to unified tariffs•The regulatory effects of using differential welfare weights across markets.•The impact of tighter profit constraints and cost links across market sections.•Identification conditions where partial tariffs beat unified tariffs.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2018.03.011