Peak-load Pricing Research Articles

The strategy of differential pricing and network utilization: evidence from India’s telecommunications sector

PurposeThe network capacity deployed to manage the busy hour (or peak-hour) traffic remains underused during the nonbusy (off-peak) hours. Transferring some traffic from peak-hour to off-peak hours is likely to improve the utilization of network resources during the off-peak hours. This paper aims to examine whether diverting traffic from peak-hour to off-peak hours is possible by adopting the differential pricing policy.Design/methodology/approachThe peak-load pricing theory suggests that the policy of differential pricing is socially optimal when there is peak demand for a particular duration and then there is off-peak demand. In this study, hourly traffic data from both peak and off-peak periods were collected from the Indian telecom service provider, “Aircel.” The paper analyzed the disparity in traffic between peak and off-peak hours using the nonparametric Tukey’s test. An experiment was also conducted to analyze whether a significant shift in telecom traffic occurs from the peak to the off-peak period when a price discount is applied during the off-peak period.FindingsStatistically significant differences were observed in network traffic between peak-hour and off-peak hours. The network utilization of the telecom service provider Aircel was notably lower, particularly during the off-peak hours. The experiment demonstrated a high degree of price sensitivity among telecom service subscribers. Telecom Regulatory Authority of India (TRAI) has not considered network utilization of telecom service providers as a key performance indicator. Based on the outcomes of the study, this paper recommends that TRAI should adopt a more proactive approach by encouraging telecom service providers to follow the policy of differential pricing to enhance utilization of their network capacity.Originality/valueTo the best of the authors’ knowledge, this is the first paper to explore the issue of pricing as a tool for bringing about more uniform movement of telecom traffic, thereby enhancing network utilization within India’s telecommunications sector.

A Study on Bus Passengers Behaviour with Special Reference to Bangalore City

The transport system provides the basic infrastructure and it affects the economic activities of the country. The transport sector in India is divided into passenger and freight. The passenger services are available in both government private of bus category. At present private sector owns majority of the buses compared to government. In Andhra Pradesh and Karnataka also the private transport players dominating the passenger’s transportation market, especially if the travelling distance is more than 250 KM. Initially consumers (passengers) have been attracted with the facilities and service given by private bus operators. With the increasing competition and other policy issues, the private bus operators are implementing peak load pricing strategy. This pricing strategy is unexpected and unjustifiable to any passenger and even unbearable to them. And the facilities and service are same. Therefore a study has been made by the researcher to bring out the passengers behavior with peak load pricing by private operators with reference to Bangalore city in the state of Karnataka . By using judgment random sampling technique, 110 respondents were selected as sample size and information gathered through interview method. The outcome of the research has shown very interesting results such as customers’ dissatisfaction on Government failure to control the Private Bus operators and the price exploitation, in connection with their no alternative to avoid the services

The Options in Decarbonization Pathways for Malaysia

Abstract Two activities in Malaysia that emit large amounts of CO2 are electricity generation, and iron and steel production. To decarbonize the former, Malaysia should invest in a flexible energy system to overcome the intermittent characteristic of solar energy by influencing the pattern of demand with peak load pricing, increasing energy storage capability, and entering into a regional electricity grid arrangement. Malaysia should respond to the recent large capacity expansion in iron and steel production with blast furnace-basic oxygen furnace (BF-BOF) technology by ending immediately the issuance of new licenses for facilities that use this BF-BOF technology, and speed up the process of adopting advanced green, near-zero emission technologies (e.g., Hydrogen Breakthrough Ironmaking Technology [HYBRIT]), by applying for foreign technical assistance (e.g., the United Nations Climate Technology Center and Networks [UN-CTCN]) and for concessionary climate finance under the Paris Agreement. Finally, to be consistent with the 1.5°C pathway for the world, Malaysia should aim to commit to achieve peak carbon emissions by 2030 and net zero emissions by 2050.

Innovative price-setting approaches to high-value products: A pricing method for agribusiness farmers

Despite being determined by global market prices, the majority of Thai farmers have never become innovative price setters. Not many Thai farmers considered a pricing approach that would maximize the value of their agricultural products. To this end, this study provides empirical evidence regarding the impact of marketing-based variables on pricing. This study aims to identify marketing-based determinants involved in innovative, dynamic price settings for value-added agricultural products. We consider two approaches to innovative pricing – segmented (tiered) pricing and peak-load pricing – to see if there is a possibility for such pricing. A sample of 840 agribusiness farmers was collected from different regions of Thailand. Using multigroup structural invariance analysis, the sample was grouped into four types of farmers: rice, sugarcane, maize, and cassava, to see if there were any differences between them in each of the proposed pricing propensities. Our study finds that cassava farmers tend to pay significant attention to market focus, customer and product differentiation, brand orientation, and segment-based mass customization. Other groups of farmers, like rice and sugarcane, tend to set segmented (tiered) pricing as a result of brand orientation and mass customization. As for peak load pricing, market demand and seasonality are significant factors that can be found among four crops. No matter how prices are set on the global market, this study suggests that agribusiness farmers should think about marketing-related factors to stand out from their competitors.

Employer Perceptions of Introducing Dynamic Pricing for Urban Rail: Evidence from Tokyo during Work Style Changes

In Tokyo, there is growing interest in the introduction of dynamic pricing for urban rail or a congestion measure that distributes rail demand through an additional charge during peak hours. Employee commuting costs in Japan are often borne by employers. In this study, we analyze employers’ perceptions of and potential responses to the introduction of peak-load pricing in the urban rail network based on a survey of 215 major companies with headquarters in Tokyo Metropolis. The results show that the median value of “intention to pay the additional charge during peak hours” 20% to 30% of each company’s commuter pass expenditure per month, per employee. Furthermore, companies can also consider diversified responses that may facilitate congestion easing. The results show that 70% of the sampled companies are likely to promote varied work styles if peak-load pricing is introduced. We confirm that this response could be stronger for companies with more employees. Companies with larger profit margins per employee and/or those providing professional and business services are likely to review their payroll systems and benefits. In cases where the additional charge is set above the payable amount, companies with more employees can promote varied work styles, require employees to pay part of the commuting costs, and consider relocating employees or offices away from Tokyo Metropolis. Companies in the hospitality, lifestyle-related, and entertainment industries are unable to change the way employees work and would review their payroll systems and benefits.

Dynamic pricing and perceived fairness: a case study at a hotel on the West Frisian island of Vlieland, The Netherlands

ABSTRACT The use of dynamic pricing strategies can have a tremendous impact on the hospitality industry. Understanding the variety in the type of customers and the perceptions of customers concerning the fairness of dynamic pricing is essential. This study aimed to investigate how a dynamic pricing strategy could positively affect the demand for a hotel located on the West Frisian island of Vlieland. This research was divided into four topics: determining segments and corresponding booking processes, the importance of price when booking, perceived fairness of price change and how to influence booking behaviour. This research used a survey that was presented to customers of the hotel in this case study for six weeks. Three hundred and sixty-eight customers completed the survey. The evidence suggests that implementing a more elaborate pricing strategy would positively affect the demand for this hotel. While price is still an essential factor when booking, it is concluded that this is not the most important consideration for consumers. If a pricing strategy is implemented, the hotel can improve the occupancy rate and generate more hotel revenue while simultaneously keeping the consumers satisfied. Relevant managerial implications include implementing peak load pricing to influence demand.

Peak-Load Pricing With Quality-Differentiated Demand

This is the fifth in a series of teaching notes on quality-differentiated demand. With an eye on accessibility to undergraduate economics majors, the focus here is on peak-load pricing and highway tolls. Once quality considerations are accounted for, a richer set of insights is derived to guide social planners in deciding optimal levels of traffic flow and tolls. JEL Classifications: L0, D0

Revenue management in restaurants: the role of customers’ suspicion of price increases

ABSTRACT The restaurant industry has yet to fully embrace revenue management (RM) in the form of peak-load pricing. Restaurateurs fear customers’ reactions to price increases could negatively impact their satisfaction and return intentions. In this study an experimental design was used to examine if the explanation provided to customers of a hypothetical restaurant that implemented peak-load menu pricing during periods of high (peak) demand would predict customers’ reactions. Reactions assessed included respondents’ suspicion of the restaurant, perceptions of pricing fairness and price-value, satisfaction, and return intentions. Additionally, the moderating effects of customers’ familiarity with RM and the direct effects of decisional control and income were assessed. Data from 409 respondents showed that higher suspicion was negatively associated with perceptions of pricing fairness and price-value, satisfaction, and return intentions during peak-demand periods (weekends). These lower return intentions, however, were also found for off-peak demand periods (weekdays) when no price increase had been implemented. The results suggest that suspicion, once activated, can lead to customer loss during both peak and off-peak demand periods, and that restaurant operators wanting to use peak-load pricing must carefully consider various factors in its implementation.

Estimating the price elasticity of demand for urban mass rapid transit ridership: A quasi-experimental evidence from Jakarta, Indonesia

This study estimated the price elasticity of demand for newly opened mass rapid transit in Jakarta. We exploited a tariff change event in mid-May 2019 using the Regression Discontinuity in Time (RDiT) framework with a high intensity data. The preferred estimate showed that the event reduced the ridership by 7.4 per cent, implying price inelastic demand to a 100 per cent price increase. The estimates suggest a substantial variation within a day. The demand in the off-peak is more sensitive than in the peak period. Our results justify the necessity of supply-side expansion to promote more ridership and the need for peak-load pricing in pricing strategy.

Information shocks and profitability risks for power plant investments – impacts of policy instruments

Climate change mitigation requires governmental intervention and there are various measures that can achieve this. While economists generally advocate first-best instruments, the reality is rather different, as subsidy schemes are commonly used for supporting renewable energy sources. The supporters of these schemes often argue that investment risk reduction is essential to achieving ambitious environmental targets. In this paper, we compare four different instruments (carbon cap, carbon tax, minimum renewable quota, and feed-in tariffs / renewable auctions) in terms of effectiveness, efficiency, and mitigation of investment risks. Risks are assessed assuming an uncertain investment environment, represented by different information shocks on demand, investment, and fuel cost. We employ an electricity market equilibrium model (generalized peak load pricing model) of the future German electricity market implemented as a linear optimization problem. Beginning from a long-run equilibrium, single input parameters such as demand, fuel prices, and investment costs are varied to simulate the arrival of new information. Rerunning the model with partially fixed capacities enables us to analyze the sequential adjustment of the power generation portfolio toward a new equilibrium over time. As expected, we find that quantity-based instruments are effective in ensuring the achievement of quantitative goals—notably a certain emission level. However, risks for investors are rather high in such cases. While our analyses confirm that the first-best instruments—carbon cap and carbon tax—provide the most efficient trade-off between emission reduction and cost, we also establish that investment risks are lower with price-based mechanisms. Particularly feed-in tariffs / renewable auctions provide the possibility of substantially limiting risks by diversification even when only electricity market assets are considered.

Peak-Load Pricing in Portland: Theory, Application, and Recommendations for Central Business District Pricing Policy

In order to make good microeconomic policy in the public sector, non-rivalrous goods and joint costs need to be addressed. One field where non-rivalrous goods and joint costs are important to consider is in the economics of peak-load pricing and transportation policy. This concept is often applied to electrical utilities, but not often applied as a way to relieve the burden of downtown traffic congestion during peak traffic times or to increase city revenues. This paper discusses the theory of peak-load pricing as it applies to “central business districts” (CBDs). It demonstrates successful and unsuccessful examples of peak-flow pricing in CBDs in other cities, including how the private costs of driving interact with potentially implementing a policy, and how politics play a role in implementing peak-load pricing policies. Finally, it discusses current transportation policies in Portland, Oregon, and recommends the city implement a congestion pricing policy.

Peak-Load Pricing with Quality-Differentiated Demand

Peak-Load Pricing with Quality-Differentiated Demand

The entry and exit game in the electricity markets: A mean-field game approach

<p style='text-indent:20px;'>We develop a model for the industry dynamics in the electricity market, based on mean-field games of optimal stopping. In our model, there are two types of agents: the renewable producers and the conventional producers. The renewable producers choose the optimal moment to build new renewable plants, and the conventional producers choose the optimal moment to exit the market. The agents interact through the market price, determined by matching the aggregate supply of the two types of producers with an exogenous demand function. Using a relaxed formulation of optimal stopping mean-field games, we prove the existence of a Nash equilibrium and the uniqueness of the equilibrium price process. An empirical example, inspired by the UK electricity market is presented. The example shows that while renewable subsidies clearly lead to higher renewable penetration, this may entail a cost to the consumer in terms of higher peakload prices. In order to avoid rising prices, the renewable subsidies must be combined with mechanisms ensuring that sufficient conventional capacity remains in place to meet the energy demand during peak periods.</p>

Technical Appendix of 'Peak-Load Pricing with Different Types of Dispatchability'

This technical appendix of Eisenack and Mier (2019) presents the proofs and calculations (Section 1), and the extension to perfectly correlated generation units (Section 2). See also Eisenack and Mier (2018).

Peak-load pricing with different types of dispatchability

We extend the theory of peak-load pricing by considering that the production with different technologies can be adjusted within their capacity at different speeds. In the established analysis, all production decisions can be made after the random variables realize. In our setting, in contrast, some decisions are made before, others after. This is important, e.g., when increasing capacities of renewables are integrated in electricity systems worldwide. We consider fixed load and three types of capacities: partially dispatchable capacity (e.g., nuclear power-plants) needs to be scheduled ahead of actual production, non-dispatchable capacity (e.g., wind turbines) produces randomly, and highly-dispatchable capacity (e.g., gas turbines) can instantly adjust. If capacities differ in their dispatchability, some standard results of peak-load pricing break down. For example, less capacity types will be employed. Either a system with partially dispatchable technologies only, or a system dominated by non-dispatchable technologies and supplemented by highly-dispatchables occurs. Non- and highly dispatchable technologies can be substitutes or complements. The probability of outage does not rise if non-dispatchable capacity becomes cheaper. In a system with non-dispatchables, capacity decisions cannot be decentralized by conventional markets because cost recovery is not possible. Thus, the integration of renewable electricity generators requires alternative market designs.

Evaluation of Flexibility Markets for Retailer–DSO–TSO Coordination

The rise of distributed energy resources (DERs) can enhance the efficiency of system operations by providing flexibility services to the different agents involved, but they also pose a major resource allocation problem. This study considers three different agents procuring DER services: distribution system operators (DSOs) for local congestion management, transmission system operators (TSOs) for system-wide reserve deployment, and retailers for hedging against network usage tariffs based upon peak-load pricing. A variety of market mechanisms are identified to co-ordinate these needs, and three schemes are developed in detail. These are separate markets for each agent, co-ordinated Shapley value allocations for TSO and DSO, and a co-ordinated mechanism including retailers. These designs are evaluated on a realistic distribution network in Britain for two operational days. The results show a more efficient dispatch from the TSO–DSO co-ordinated procurement over independent sequential procurements. However, the inclusion of retailers in the joint dispatch is surprisingly less attractive due to the lack of improvement in social welfare and the undesirable impacts on the DSO.

Improving Peak-load Pricing Method for Provincial Transmission and Distribution Network Considering Power Backflow

In view of the power backflow phenomenon in provincial transmission and distribution network caused by the fact that more and more new energy power is connected to the power grid, a provincial network voltage level pricing method considering power backflow is proposed. For exactly describing the complex power transmission relationships among various voltage levels in consideration of power backflow, a new power transmission model is proposed. And the balance parameters of the whole transmission and distribution network are gained based on the transmission data. The problems in cost sharing caused by power backflow are analysed and an improving peak-load pricing method solving the problems is proposed. Conceptions of source point transmission and distribution cost (SPTDC) and load point transmission and distribution cost (LPTDC) are defined. Through calculating the LPTDC in each voltage level, the cost apportionment is accomplished. The case study of a certain provincial power network is carried out and the effectiveness of this pricing method is proved. The results show that this method can recover all the transmission and distribution cost of the network and can authentically reflect the influence of power backflow on the transmission and distribution price.

On the efficient market diffusion of intermittent renewable energies

Capacity costs of renewable energies have been decreasing dramatically and are expected to fall further, making them more competitive with fossils. Building on an analytically tractable peak-load pricing model, we analyze how intermittency of renewable energies affects the market diffusion that results from these lower costs. In particular, once renewables have become competitive by attaining the same levelized cost of electricity (LCOE) as fossils, the marginal increase in efficient capacities due to a further cost reduction varies substantially. Initially it is small, then it rises, but it falls again once renewable capacities are large enough to satisfy the whole electricity demand at times of high availability. If external costs of fossils are internalized by a Pigouvian tax, then perfect competition leads to efficient investments in renewable and fossil capacities; even though we assume that only a subgroup of consumers can adapt their demand to price fluctuations that are caused by the intermittency of renewables. Moreover, fossils receive a capacity payment through the market for their reliability in serving demand of non-reactive consumers. Maximum electricity prices rise with the share of renewables. If regulators impose a price cap, this initially raises investments in renewables, but the effect may reverse if the share of renewables is large.

The European Internal Energy Market’s Worth to the UK

This article proposes a two-country model of electricity trade under peak-load pricing. We apply the model to France and the UK to assess the benefit to the UK of trade within the European internal energy market (IEM). Calibration and simulations of the model aimed at simulating bilateral trade in the market coupling process at electricity exchanges show the following. First, the occurrence of gains from trade for both countries is highly dependent on whether imported electricity affects the price in the local market and whether imports alleviate scarcity. Second, the main effect of importing electricity is a shift in welfare from domestic producers to domestic consumers of the importing country. Finally, the UK’s membership in the IEM generates additional welfare for the UK of up to 900 M€ per year across a range of scenarios in which the number of on-peak periods are exogenously varied in a conservative way relative to the actual data.

Peak-Load Pricing with Different Types of Dispatchability

We extend the theory of peak-load pricing by considering that the production with different technologies can be adjusted within their capacity at different speeds. In the established analysis, all production decisions can be made after the random variables realize. In our setting, in contrast, some decisions are made before, others after. We consider fixed load and three types of capacities: partially dispatchable capacity needs to be scheduled ahead of actual production, non-dispatchable capacity produces randomly, and highly-dispatchable capacity can instantly adjust. If capacities differ in their dispatchability, some standard results of peak-load pricing break down, e.g., less capacity types will be employed. Either a system with partially dispatchable technologies only, or a system dominated by non-dispatchable technologies and supplemented by highly-dispatchables occurs, where non- and highly dispatchable technologies could be substitutes or complements. For the latter system capacity decisions cannot be decentralized by markets because costs recovery is not possible.