[PDF] The Pricing Structure Of Local Telephone Service eBook

Author : Bridger M. Mitchell
Publisher :
Page : 32 pages
File Size : 34,45 MB
Release : 1980
Category : Telecommunication
ISBN :

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The ex-post option would constitute a market test that could discriminate between alternative explanations of consumers' observed preferences for flat-rate service. By choosing the ex-post option consumers could obtain information about their own local telephone usage at low cost. If they presently select flat-rate service primarily because of uncertainty about what their bills would be under measured rates, then an optional ex-post rate should be popular. However, if consumers' choices to date reflect the behavior of informed subscribers who derive utility simply from being able to place local calls at a zero price, then providing an ex-post option will not significantly increase the total number of consumers on a measured rate. In this case, the market data would provide a method of measuring the 'utility premium' that subscribers attach to flat rates (Mitchell 1979c). The finding of a large premium would support the offering of optional flat-rate service on a subsidy-free basis. This approach would then be desirable even when--because measuring costs are small--mandatory measured service would otherwise be judged a welfare-superior rate structure.

Author : Bridger M. Mitchell
Publisher :
Page : 28 pages
File Size : 22,53 MB
Release : 1981
Category : Telephone
ISBN :

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A well-developed body of economic theory is available to guide the setting of prices for the multi-product regualated firm. Economic efficiency can be increased by designing rate structures that incorporate the basic principles developed from this theory. These principles call for provisionally pricing each of the firm's outputs at its marginal cost, testing to determine whether such rates satisfy a specified budget constraint (e.g., revenues = costs), and then suitably modifying the marginal-cost rates in order to satisfy the constraint. Most commonly, the trial rates produce insufficient revenue, and then rates must be raised according to the Ramsey rule--prices are increased above marginal costs in inverse proportion to the individual price elasticities of demand. This paper applies ratemaking theory to the design of rate structures for local telephone calls that efficiently rate the costs of the local network.