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- Title
Uncertainty, Congestion and Peak Load Pricing.
- Authors
Kay, J.A.
- Abstract
There are two main types of policy which can be adopted, which we may describe as "loss systems" and "delay systems" (following the terminology of telephone engineers, for whom the problem is particularly relevant). In a loss system, demand which exceeds capacity is rejected. Guests who arrive when the hotel is full are turned away. When electricity demand is excessive, the supply authority disconnects a sufficiently large proportion of its consumers to enable it to meet the demand which remains. A delay system, on the other hand, retains excess demands within the system until capacity to meet them becomes available. When the postal system is overloaded, mail is held until it can be handled. Telephone systems were once delay systems, in which operators put calls through as lines became available. Now they are in form loss systems, in which calls which cannot be handled are refused: but they still retain some delay characteristics, since rejected calls will typically be repeated after a short interval. This paper is mainly concerned with loss systems, which present the more difficult analytical problem, but its results can easily be generalized to cover delay systems. There is a range of ways in which unsatisfied customers can be selected. The process may be wholly random, as with telephones. Priority may be given to those who notify their demands in advance, as with restaurant or airline bookings, or to those who pay more, as with standby flights, the two-tier postal system or interruptible supplies of gas or electricity. Or the selection of those who are denied supply may be at the—constrained—discretion of the supplier. Electricity boards must disconnect whole areas, but they can choose which areas to disconnect.
- Subjects
PEAK load pricing (Public utilities); UNCERTAINTY; CONGESTION pricing; PRICING; TELEPHONES; ECONOMIC demand; ECONOMIC lag; CONSUMERS
- Publication
Review of Economic Studies, 1979, Vol 46, Issue 4, p601
- ISSN
0034-6527
- Publication type
Article
- DOI
10.2307/2297030