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Cost Accounting: What is Peak Load Pricing? 0 Views
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Description:
What is Peak Load Pricing? Peak load pricing happens when companies increase the price of goods during times of high demand. So, a simple example would be increasing the price of Christmas lights during Christmas time.
Transcript
- 00:00
And finance Allah shmoop What is peak load pricing Ah
- 00:09
uber you're such an evil genius Ever tried to book
- 00:12
a ride at five thirty after work on a rainy
- 00:14
day Yeah good luck with that And if the ride
- 00:17
normally would have cost eighteen bucks well be ready to
Full Transcript
- 00:20
pay thirty or forty or fifty The biggest uber mover
- 00:23
twelve thirty two a M January one Yeah drunk New
- 00:27
Year's Eve Post partiers desperate to get home for the
- 00:31
ensuing annual with you know porcelain Goddess So peak load
- 00:35
or peak demand season or peak demand Ours happen when
- 00:40
demand you know peaks like there's lots of it Lots
- 00:43
of demand and pricing toe optimize profits derived from the
- 00:47
fact that at peak demand times there is either just
- 00:50
tons of demand or that the demand curve in this
- 00:53
period is vertical like people will pay almost anything for
- 00:57
that New Year's ride home If it normally cost twenty
- 00:59
bucks it can cost one hundred and people will pay
- 01:02
Why Well because the marginal value of that hundred bucks
- 01:05
is way cheaper than a running your car into a
- 01:08
tree Be running your car into a human see having
- 01:13
do I tickets and jail time that would ensue and
- 01:16
d twenty years of psycho analysis to help you deal
- 01:20
with the fact that you ran over one of the
- 01:22
young actors from modern family So peak load pricing used
- 01:25
to be a huge thing in long distance calling like
- 01:28
during business hours when businesses that were well more or
- 01:32
less price insensitive to the cost of a phone call
- 01:34
it was a rounding error in the course of doing
- 01:36
their business would do anything or pay anything for that
- 01:39
call from New York to Florida or London or wherever
- 01:43
they were calling two bucks a minute Find four bucks
- 01:46
Fine just make the call It was such high pricing
- 01:48
that a lot of consumers simply did not make the
- 01:51
call and the phone companies feared regulatory backlash and also
- 01:54
wanted to take advantage of the consumer demand at cheaper
- 01:57
prices So when Peak crest sted and the night set
- 02:01
in like between say ten P M and seven A
- 02:04
M prices were cut massively for long distance phone calls
- 02:07
like by half or by two thirds There was another
- 02:10
reason for the peak load pricing as well In those
- 02:13
days Priest Skype and Google Hangout phone companies were circuit
- 02:17
switch not packet switch which meant that there were in
- 02:20
fact line capacity Maximums that were hit went like eight
- 02:24
percent of the country tried to use the phone lines
- 02:26
all of the same time So to scale up for
- 02:29
nine or ten or twelve or fifteen percent of the
- 02:31
country using the phone lines all at the same time
- 02:34
it cost the phone companies of Fortune and they wanted
- 02:36
to get paid back for their efforts So the higher
- 02:39
prices matched their higher marginal costs in providing that infrastructure
- 02:43
Well all that went away with Internet telephony But the
- 02:45
scar still exist on the population who grew up under
- 02:49
that iron fisted telephony rule So where is peak load
- 02:52
pricing today In oldie worldly things electricity will the same
- 02:57
physics that hit phone companies hit electricity producers as well
- 03:01
On ly so much power can be generated at cheap
- 03:04
fish prices on the grid at once And if demand
- 03:06
exceeds their maximum who bad things happen like the whole
- 03:10
system overheat and shut down as a safety precaution avoids
- 03:14
fires or the local power company's has toe by power
- 03:18
from others in some form and then ship that power
- 03:21
locally and it's a whole mess So power companies charge
- 03:24
big peak load prices and highly encourage laundry doing after
- 03:29
midnight when very few people are sucking from the electric
- 03:32
teet And there is a ton of excess or slack
- 03:35
capacity in the system to remember all that the next
- 03:38
time there's a brownout from a hot day when everyone's
- 03:41
blasting a C units on high and eliminate is on
- 03:44
tap and they only their doors open and it's just 00:03:47.868 --> [endTime] very cranky
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