Price-cap regulation

The maximum price regulation is a method for the regulation of natural monopolies, which is considered relatively practical. It will, based on the Einproduktfall, in English also called price cap regulation; for the multi- product case (the basket ), the price -cap regulation are translated with price cap regulation.

Background

Natural monopolies arise primarily when high fixed costs but relatively low variable costs for production or supply of a product or service produced. One example is the telecommunications sector. Here is usually a single large provider owners across the entire network infrastructure. This provider can, at least in the fixed network ( access to the network and connections) to work far more cost efficient than multiple small vendors. However, an unregulated monopoly usually leads to high prices, which are not optimal and politically in most cases also not desirable from the perspective of welfare economics.

Application

The maximum price regulation does not require extensive and often not available for regulatory authorities with information about the monopolist. The regulating companies to get a price or at different offerings, such as long-distance and local calls, a weighted average price, which is adjusted regularly. This adjustment is based on the inflation rate (price index) and an anticipated increase in productivity. In various offers also it remains the monopoly to decide how he designed the prices as long as a predetermined average price is reached. For the regulated company, the maximum price regulation as opposed to a single price approval means the advantage of being able to make price changes more flexible.