Optimal Peak-Load Pricing for Local Telephone Calls

Technical Appendixes

by Rolla Edward Park, Bridger M. Mitchell

Purchase Print Copy

 FormatList Price Price
Add to Cart Paperback85 pages $25.00 $20.00 20% Web Discount

This report contains five technical appendixes that supports an analysis that shows how to find optimal time-of-day measured-rate prices for local telephone calls. This analysis 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.

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

This research in the public interest was supported by RAND, using discretionary funds made possible by the generosity of RAND's donors, the fees earned on client-funded research, and independent research and development (IR&D) funds provided by the Department of Defense.

Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit www.rand.org/about/principles.

The RAND Corporation 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.