Pricing of an Endogenous Peak-Load

Abstract

This paper aims to explore the peak-load price results arising in a congestion game setting. A continuum of players decide when consuming a service (say, during the day or the night): for instance, they choose when connecting to internet or when driving a car in the road network. The utility they get is a function of the individual preferences and of the aggregate behavior of the other players. Therefore day and night demands are endogenous. We consider what prices a social planner imposes to drive the players' choice towards the equilibrium distribution of first best. Moreover, we consider what prices (and what distribution) a monopolist, maximizing his profit, chooses, when he has to satisfy an universal service requirement and when he may restrict his supply. Finally, we determine which capacity level is optimal to install for either a social planner or a monopolist in this setting.