Peak load pricing

Peak-load pricing is a policy of raising prices when the demand for a service is at its highest. The most recent analysis of this pricing policy stems from American research in the 1960s and 1970s.

Peak-load pricing is often used by electricity and telephone utilities as a means of reflecting the investment they have made to meet peak demand for their services.

Also see: average cost pricing, mark-up pricing, marginal cost pricing, cost-push inflation

P L Joskow, ‘Contributions to the Theory of Marginal Cost Pricing’, Bell Journal of Economics, 7,1 (Spring, 1976);
O E Williamson, ‘Peak Load Pricing and Optimal Capacity under Indivisibility Constraints’, American Economic Review, vol. LVI (1966), 810-27

Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business’s marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the marketplace, competition, market condition, brand, and quality of product.

Pricing is a fundamental aspect of financial modeling and is one of the four Ps of the marketing mix, the other three aspects being product, promotion, and place. Price is the only revenue generating element amongst the four Ps, the rest being cost centers. However, the other Ps of marketing will contribute to decreasing price elasticity and so enable price increases to drive greater revenue and profits.

Pricing can be a manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated pricing systems require more setup and maintenance but may prevent pricing errors. The needs of the consumer can be converted into demand only if the consumer has the willingness and capacity to buy the product. Thus, pricing is the most important concept in the field of marketing, it is used as a tactical decision in response to changing competitive, market and organisational situations

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