Optimal Pricing of Local Telephone Service.

Bridger M. Mitchell

ResearchPublished 1976

Analyzes the economic effects of usage-sensitive pricing (USP), under which telephone companies are proposing to charge subscribers for both the number and duration of calls, instead of a flat monthly rate. Constructs a mathematical model of the demand for residential telephone service, calibrates it to existing data, and quantifies the effects of changing from flat-rate to two-part tariffs under which subscribers would pay a monthly rate plus a per-call charge. USP will attract new subscribers, especially low-income households, and all consumer groups will make some reductions in their calls. Optimal two-part tariffs can increase the social welfare from local telephone service by some 9 percent; larger gains are likely if USP is applied uniformly to both residential and business subscribers and if tariffs include peak-load rates. In the residential sector alone, peak-load usage-sensitive tariffs should yield net welfare gains on the order of $500 million per year. 68 pp. Bibliog.

Document Details

  • Copyright: RAND Corporation
  • Availability: Web Only
  • Year: 1976
  • Pages: 68
  • Document Number: R-1962-MF

Citation

Chicago Manual of Style

Mitchell, Bridger M., Optimal Pricing of Local Telephone Service. Santa Monica, CA: RAND Corporation, 1976. https://www.rand.org/pubs/reports/R1962.html.
BibTeX RIS

This publication is part of the RAND report series. The report series, a product of RAND from 1948 to 1993, represented the principal publication documenting and transmitting RAND's major research findings and final research.

This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit www.rand.org/pubs/permissions.

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.