The Subtraction Rule and its Effects on Pricing in the Electricity Industry

The paper deals with the subtraction rule, which has been proposed by the „working group security of supply in service of the cartel offices of the federal republic and the states” as an instrument to identify improperly inflated network access charges in the electricity industry. We analyze firms’ price responses and adaptations to this rule. The results suggest that the introduction of the subtraction rule would increase prices, regardless of whether network access charges are improperly inflated or not.

Elberfeld, Walter (2004), The Subtraction Rule and its Effects on Pricing in the Electricity Industry, ZEW Discussion Paper No. 04-21, Mannheim.