Optimal Peak-Load Pricing for Local Telephone Calls

Rolla Edward Park, Bridger M. Mitchell

ResearchPublished 1987

This report shows how to find optimal time-of-day measured-rate prices for local telephone calls. It uses a simulation model based on actual telephone traffic data for each hour for a full year. The model calculates capacity cost savings, measurement costs, losses in consumer benefit due to price rationing, and losses due to quantity rationing, to assess the net welfare effects of alternative tariffs. It is the first application of peak-load pricing theory to recognize and account for variation in demand within feasible pricing periods. Feasible tariffs are limited to perhaps three price periods that repeat from day to day, and local telephone demand varies markedly within such periods, sharply limiting the efficiency gains that price rationing can achieve. The findings suggest that, contrary to conventional wisdom, measured-rate pricing of local telephone calls is likely to be less efficient than traditional flat-rate pricing. If local measured service is desirable public policy, it must be justified on grounds other than economic efficiency.

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  • Copyright: RAND Corporation
  • Availability: Available
  • Year: 1987
  • Print Format: Paperback
  • Paperback Pages: 54
  • Paperback Price: $20.00
  • Paperback ISBN/EAN: 978-0-8330-0856-5
  • Document Number: R-3404-1-RC

Citation

RAND Style Manual
Park, Rolla Edward and Bridger M. Mitchell, Optimal Peak-Load Pricing for Local Telephone Calls, RAND Corporation, R-3404-1-RC, 1987. As of September 15, 2024: https://www.rand.org/pubs/reports/R3404-1.html
Chicago Manual of Style
Park, Rolla Edward and Bridger M. Mitchell, Optimal Peak-Load Pricing for Local Telephone Calls. Santa Monica, CA: RAND Corporation, 1987. https://www.rand.org/pubs/reports/R3404-1.html. Also available in print form.
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