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Price cap regulation in telecommunications: from theory to practice

Subject

Economics

Publishing details

Regulation Initiative Working Paper Series

Publication Year

1999

Abstract

Theoretical and empirical analyses have shown that the application of price-caps in telecommunications promotes desirable incentives. However, there is a suprising lack of formal analysis addressing the pracitical evaluation and design of price-caps. In this paper I seek to redress this imbalance by looking at the retail price-caps applied on British Telecom (BT) since 1984. The current price-cap, which had been designed especially to target the interest of low to medium spending customers, is looked at closely. It is shown that because there is a positive correlation between customers' expenditure and the distance of calls made by cstomers, a revenue-weighted price-cap is sufficiently flexible to target the interests of low to medium spending customers.

Publication Research Centre

Regulation Initiative (closed)

Series Number

23

Series

Regulation Initiative Working Paper Series

Available on ECCH

No


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