Pricing In The Case Of Privately-Owned Water Utilities

Abstract

This paper is concerned with the extent of price discrimination among customer classes for privately-owned water utilities that are regulated by state commissions. The test of price discrimination requires the specification and estimation of long-run marginal cost functions for each class of customer and prices of service. This procedure yields the price-long-run marginal cost ratios for each customer class required to test for price discrimination. We examine whether the rates afforded the respective customer classes are set in accordance with variations in the elasticity of demand of the respective customer classes. In so doing, we proceed to test the existence of Ramsey pricing.