Using NPV = 0 rule to infer excess profits in a competitive enviroment
Walmsley, Michael A
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Cite this item:
Walmsley, M. A. (2005). Using NPV = 0 rule to infer excess profits in a competitive enviroment (Thesis). Retrieved from http://hdl.handle.net/10523/1396
Permanent link to OUR Archive version:
http://hdl.handle.net/10523/1396
Abstract:
In this study we evaluate the methodology used by the New Zealand Commerce Commission in determining the socially 'optimal' price level for regulated industries.Focusing on the fact that the current methodology ignores the existence of costly market frictions and valuable real options, we identify possible weaknesses in the price setting process, which could result in regulated companies receiving an inadequate return on the cost of their invested capital. To test if these weaknesses invalidate the methodology we measured the effect of competition on the value of real options, with inconclusive results. However, evidence is found which indicates that some competitive industries may still have valuable real options or experiencecostly market frictions.
Date:
2005
Degree Discipline:
Finance
Pages:
38
Keywords:
New Zealand Commerce Commission; optimal; price level; regulated industries; return; invested capital; real options; Methodology
Research Type:
Thesis
Collections
- Thesis - Masters [4213]
- Accountancy and Finance [273]