AVERAGE REVENUE REGULATION AND REGIONAL PRICE STRUCTURE

Some newly privatised industries in the U.K. are subject to a constraint on an average revenue yield. This paper analyses the likely effect of such a constraint on the regional pattern of the industry's prices and output, and the implications for economic efficiency, extending this analysis to other aspects of price structure. It shows that such a constraint gives the industry incentives to charge economically inefficient prices and to restrict the area which is supplied. The paper discusses why such a constraint may have been imposed and concludes with an account of U.K. industries subject to such regulation. © 1991.