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. Congestion

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

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

    A situation in which a single company or group owns all or nearly ...
  4. Blackout Period

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

    A type of market that features one, if not all, of the traits ...
  6. Legal Monopoly

    A company that is operating as a monopoly under a government ...
Related Articles
  1. Utility Funds: A Bright Choice In Bear ...
    Mutual Funds & ETFs

    Utility Funds: A Bright Choice In Bear ...

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

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

  3. Early Monopolies: Conquest And Corruption
    Personal Finance

    Early Monopolies: Conquest And Corruption

  4. A Practical Look At Microeconomics
    Economics

    A Practical Look At Microeconomics

comments powered by Disqus
Hot Definitions
  1. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  2. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  3. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  4. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  5. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  6. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
Trading Center