Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If You Use a Screen Reader

This content is available through Read Online (Free) program, which relies on page scans. Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.

The Theory of Public Utility Pricing and Its Application

R. H. Coase
The Bell Journal of Economics and Management Science
Vol. 1, No. 1 (Spring, 1970), pp. 113-128
Published by: RAND Corporation
DOI: 10.2307/3003025
Stable URL: http://www.jstor.org/stable/3003025
Page Count: 16
  • Read Online (Free)
  • Download ($24.00)
  • Subscribe ($19.50)
  • Cite this Item
Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Theory of Public Utility Pricing and Its Application
Preview not available

Abstract

In the 1930's and 1940's, the view came to be held that the right policy was to make public utility prices everywhere equal to marginal cost, even where marginal cost was less than average cost and a government subsidy was required to maintain production. This policy proposal had serious weaknesses. It did not take into account the stimulus to correct forecasting of having a subsequent market test whether consumers were willing to pay the total cost; it ignored the probable effects on the administrative structure, with state enterprise superceding private enterprise and centralized operations superceding decentralized operations; it involved a redistribution of income in favor of consumers of products produced in conditions of decreasing costs; it failed to take into account the misallocation of resources resulting from the additional taxation necessitated by the subsidies. When appraising a policy proposal, it is necessary to discover its total effect. There is a growing realization among economists that this is the correct approach, and it may be that today what advocates of marginal cost pricing have in mind is that the advantages of making price equal to marginal cost should be taken into account-a position with which there would be general agreement. But if prices are not to equal marginal cost, the question of what the structure of rates should be needs to be examined. The treatment of this subject has not gone very far. But this should not obscure the agreement which exists among economists as to how costs should be calculated (which is very different from the way regulatory commissions view costs). The implications of this difference in approach for price determination may be illustrated by examining the situation created by the FCC's "Above 890-megacycle" decision, which exposed the common carriers to expanded competition from private microwave systems, and the response of the AT&T Company introducing the TELPAK[Registered Trademark] Service.

Page Thumbnails

  • Thumbnail: Page 
113
    113
  • Thumbnail: Page 
114
    114
  • Thumbnail: Page 
115
    115
  • Thumbnail: Page 
116
    116
  • Thumbnail: Page 
117
    117
  • Thumbnail: Page 
118
    118
  • Thumbnail: Page 
119
    119
  • Thumbnail: Page 
120
    120
  • Thumbnail: Page 
121
    121
  • Thumbnail: Page 
122
    122
  • Thumbnail: Page 
123
    123
  • Thumbnail: Page 
124
    124
  • Thumbnail: Page 
125
    125
  • Thumbnail: Page 
126
    126
  • Thumbnail: Page 
127
    127
  • Thumbnail: Page 
128
    128