(A) study on self-selection pricing in congested markets with application to puble utility industry

Abstract

The issue of nonuniform pricing scheme through consumer self-selection in an environment of asymmetric information and accompanying welfare distortion caused by a monopolistic seller has been extentively investigated in self-selection literature. Priority service which refers to rationing schemes under the capacity restriction in which distribution is based on a prespecified ranking order is a special form of product differentiation that expands the quality dimension of service to meet the diversities in demand for this quality dimension. In this thesis, we investigate self-selection problems in a congested system which is characterized by consumer preference not adequately represented by a single parameter and quality factors dependent of system capacity. The major findings are: (i) depending on the magnitude of utility and disutility, either consumer type may end up with zero surplus, (ii) the possibility of inefficient production may lead to idle capacity, and (iii) depending on the consumer preference structure, the monopolist``s investment is lower than, equal to, or higher than the socially optimal level, as a result, the quality distortions appear in the smae direction for both types of consumers. Also, by comparing with the random rationing system, we find that the priority service provides a higher social welfare than the random rationing system for a given capacity. However, the priority-service monopolist is able to extract more surplus from consumers than the random-rationing monopolist does, so the consumers normally get worse off under the priority pricing. Secondly, we examine the positive and normative effects of some regulatory policies to remedy distortions created by the monopolist who supplies quality differentiated products within our model. The results are: (i) the price regulations without considering product quality and the quality regulations without considering prices cannot guarantee to remedy allocative distortions or excessive monop...