While the level of prices is generally a function of a business’s costs and customer’s demand, the manner in which prices are designed or structured can be the function of diverse and often competing objectives.
A proper understanding of these objectives allows businesses and regulators to design pricing structures that do more than simply recover costs. Well-designed prices can encourage efficient investment, manage risk, influence consumption and support profitability. And they have the potential to be an information tool for both businesses and regulators to communicate their objectives to customers.
Frontier Economics has a long history of assisting regulators in designing or assessing price structures against regulatory objectives such as efficiency and the protection of vulnerable customers. We have helped many businesses (both regulated and unregulated) in designing prices that optimise profitability, address risk associated with revenue volatility or encourage efficient consumer behaviour.