Abstract
In this paper, we consider peak-load pricing by duopolists that maximize profit (not social welfare). We compare price levels and profits across peak-load versus uniform pricing regimes. Our main result is that the introduction of peak-load pricing can plausibly reduce prices by making price competition more severe and thereby reducing profits. This result suggests that competing firms may engage in collusion by not committing to peak-load pricing. Therefore, from the regulator's perspective, it will be desirable to encourage firms to engage in peak-load pricing to intensify competition.
•Whereas previous analysis of peak-load pricing assumes a monopolistic industrial structure, our model considers peak-load pricing by duopolists•Introducing peak-load pricing can plausibly increase price competition and lower prices, thereby reducing profits•Our finding suggests that firms may maintain high prices (collusion) by committing to not engage in peak-load pricing•Viewed from the regulator's perspective, it will be desirable to encourage firms to engage in peak-load pricing to intensify competition