Introduction and Statement of Purpose

The limitation of natural monopoly revenues through cost based rate of return (or, as used here, “profit level”) regulation is widely viewed as a source of productive and allocative inefficiency. Assuming for the moment a sound basis for such views, the need remains for some manner of public intervention to constrain the potential abuse of private economic power in natural monopoly markets. Among the alternatives under consideration is price level regulation. Its essence lies in the unlinking of the firm’s allowed revenues from its actual internal costs.