Peak Pricing

AAA

DEFINITION of 'Peak Pricing'

A form of congestion pricing where customers pay an additional fee during periods of high demand. Peak pricing is most frequently implemented by utility companies, who charge higher rates during times of the year when demand is the highest. The purpose of peak pricing is to regulate demand so that it stays within a manageable level of what can be supplied.

INVESTOPEDIA EXPLAINS 'Peak Pricing'

If periods of peak demand are not well managed, demand will far outstrip supply. In the case of utilities, this may cause brownouts. In the case of roads, it may cause congestion. Brownouts and congestion are costly for all users. Using peak pricing is a way of directly charging customers for these negative effects. The alternative is for municipalities to build up more infrastructure in order to accommodate peak demand. However, this option is often costly and is less efficient as it leaves a large amount of wasted capacity during non-peak demand.

RELATED TERMS
  1. Blackout Period

    1. A term that refers to a temporary period in which access is ...
  2. Monopolistic Market

    A type of market that features one, if not all, of the traits ...
  3. Congestion

    1. A market situation whereby the demand of contract holders ...
  4. Value-Based Pricing

    The setting of a product or service's price, based on the benefits ...
  5. Legal Monopoly

    A company that is operating as a monopoly under a government ...
  6. Monopoly

    A situation in which a single company or group owns all or nearly ...
Related Articles
  1. Mutual Funds & ETFs

    Utility Funds: A Bright Choice In Bear And Bull Markets

    Gas, electric and water companies' non-cyclical nature can power strong gains in any portfolio.
  2. Trading Strategies

    Setting Vs. Getting: What Is A Price-Taker?

    Learn how the economic term "price taker" may separate investors from traders.
  3. Personal Finance

    Early Monopolies: Conquest And Corruption

    This structure can be very effective, but it is also known for its abuse of power.
  4. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  5. Personal Finance

    A History Of U.S. Monopolies

    These monoliths helped develop the economy and infrastructure at the expense of competition.
  6. Economics

    What Is The Labor Market Conundrum?

    We are facing a conundrum with investment implications: Why are wages still stagnant, when jobs are being created at the fastest pace since the late 90's?
  7. Economics

    Understanding Impairment

    In finance and accounting, impairment refers to the loss of value of a company’s capital stock.
  8. Economics

    What is a Promissory Note?

    A written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.
  9. Savings

    How Microeconomics Affects Everyday Life

    Microeconomics is the study of how individuals and businesses make decisions to maximize satisfaction. Microeconomic principles can describe many everyday experiences. We use renting a New York ...
  10. Personal Finance

    Why Are Tesla Cars So Expensive?

    What makes Tesla cars so expensive? Short supply and pricey parts is a good place to start.

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center