A practical approach to quality-adjusted price cap regulation

  • Currier K
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Abstract

Price cap regulation is often combined with service quality regulation since price caps may create incentives for quality degradation. A service quality adjustment factor (the Q-Factor) in the price cap formula ensures that allowed prices fall as quality declines. This paper discusses some considerations in determining the appropriate form of the Q-Factor. The paper examines the difficulties involved in exploiting the price/quality tradeoff. In addition, the paper presents a quality-corrected price cap procedure-possessing desirable properties-that can be implemented with reasonable informational requirements. © 2007 Elsevier Ltd. All rights reserved.

Author-supplied keywords

  • Price caps
  • Service quality adjustment factor
  • Telecommunications regulation

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Authors

  • Kevin M. Currier

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