Electricity Pricing to U.S. Manufacturing Plants, 1963-2000
57 Pages Posted: 8 Feb 2008 Last revised: 26 Aug 2022
There are 2 versions of this paper
Electricity Pricing to U.S. Manufacturing Plants, 1963-2000
Date Written: February 2008
Abstract
We develop a large customer-level database to study electricity pricing to U.S. manufacturing plants from 1963 to 2000. We document tremendous dispersion in price per kWh, trace that dispersion to quantity discounts and spatial differentials, estimate the role of cost factors in quantity discounts, and test whether marginal price schedules conform to marginal cost and Ramsey pricing conditions. Our cost analysis and pricing tests rely on a novel empirical approach that exploits utility-level differences in the customer size distribution to estimate how supply costs vary with purchase quantity.
The results reveal that annual supply costs per kWh fall by more than half in moving from smaller to bigger purchasers, providing a clear cost-based rationale for quantity discounts. Before the mid 1970s, marginal price and marginal cost schedules are nearly identical, in line with efficient pricing. In later years, marginal supply costs exceed marginal prices for smaller manufacturing customers by 10% or more. In contrast to a clear role for cost factors, our evidence provides no support for a standard Ramsey-pricing interpretation of quantity discounts. Spatial dispersion in retail electricity prices among states, counties and utility service territories is large and rises over time for smaller purchasers.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Exporting Raises Productivity in Sub-Saharan African Manufacturing Plants
-
Heterogeneity in Panel Data: are There Stable Production Functions?
By Jacques Mairesse and Zvi Griliches
-
Learning to Export: Evidence from Moroccan Manufacturing
By Marcel Fafchamps, Albert Zeufack, ...
-
The Diffusion of Technology and Inequality Among Nations
By Boyan Jovanovic and Saul Lach
-
Electricity Pricing to U.S. Manufacturing Plants, 1963-2000
By Steven J. Davis, Cheryl Grim, ...
-
Up in Smoke: the Influence of Household Behavior on the Long-Run Impact of Improved Cooking Stoves
By Rema Hanna, Esther Duflo, ...