Peak Loads and Efficient Pricing: Comment

Abstract

In a 1957 paper, Peter 0. Steiner presented a theory of peak load pricing,1 which his major critic, Jack Hirschleifer, hailed as a truly major contribution which contained essentially the correct solution. 2 An earlier French paper by M. Boiteux, and unknown to Steiner, contained an analysis that is similar in many respects.3 My purpose in this note is to demonstrate that both Steiner's and Boiteux's analyses obscure certain complexities in the theory of peak load service pricing. As a result, the solution which they present seems more determinate than the general model warrants. Apparent determinancy is produced only by the implicit adoption of unjustified assumptions concerning the uniformity of marginal price over quantity. In both papers, the central elements of the analysis are developed geometrically through the utilization of orthodox demand and cost curve constructions. It will be convenient to follow Steiner's treatment here, which, to use Hirschleifer's words, employs the illuminating device of vertically adding the demand curves.4 In resorting to this construction, Steiner refers to the analogous theory of public goods formally stated by Paul A. Samuelson.5 Neither Steiner nor his critics, however, seem to have heeded Samuelson's own quite