Time-based pricing


Time-based pricing

Time-based pricing refers to a type offer or contract by a provider of a service or supplier of a commodity, in which the price depends on the time when the service is provided or the commodity is delivered. The rational background of time-based pricing is expected or observed change of the supply and demand balance during time. Time-based pricing includes fixed time-of use rates for electricity and public transport, dynamic pricing reflecting current supply-demand situation or differentiated offers for delivery of a commodity depending on the date of delivery (futures contract). Most often time-based pricing refers to a specific practice of a supplier.

Time-based pricing is the standard method of pricing in the tourist industry. Higher prices are charged during the peak season, or during special-event periods. In the off-season, hotels may charge only the operating costs of the establishment, whereas investments and any profit are gained during the high season. (This is the basic principle of the long run marginal cost (LRMC) pricing, see also Long run). Time based pricing is occasionally used by transportation service providers, whereby higher prices are charged during rush-hours, or, alternatively, some type of reduced-rate tickets are invalid at that time.

Time-based pricing of services such as provision of electric power includes, but is not limited to[1]:

  • time-of-use pricing (TOU pricing), whereby electricity prices are set for a specific time period on an advance or forward basis, typically not changing more often than twice a year. Prices paid for energy consumed during these periods are preestablished and known to consumers in advance, allowing them to vary their usage in response to such prices and manage their energy costs by shifting usage to a lower cost period or reducing their consumption overall;
  • critical peak pricing whereby time-of-use prices are in effect except for certain peak days, when prices may reflect the costs of generating and/or purchasing electricity at the wholesale level
  • real-time pricing (also: dynamic pricing) whereby electricity prices may change as often as hourly (exceptionally more often). Price signal is provided to the user on an advanced or forward basis, reflecting the utility’s cost of generating and/or purchasing electricity at the wholesale level; and
  • peak load reduction credits for consumers with large loads who enter into pre-established peak load reduction agreements that reduce a utility’s planned capacity obligations.

Time-based pricing is recommendable for utilities both in regulated or market based environment. The use of time-based pricing is limited in case of low difference between peak- and off-peak demand, unavailability of adequate time-of-use metering. Also, customer response to time-based pricing should be considered (see: Demand response).

A regulated utility will develop a time-based pricing schedule on analysis of its cost on a long-run basis, including both operation and investment costs. A utility operating in a market environment, where electricity (or other service) is auctioned on a competitive market, time-based pricing will reflect the price variations on the market. Such variations include both regular oscillations due to the demand pattern of users, supply issues (such as availability of intermittent natural resources: water flow, wind), and occasional exceptional price peaks.

Price peaks reflect strained conditions on the market (possibly augmented by market manipulation, see: California electricity crisis) and convey possible lack of investment.

Notes and references

  1. ^ Partially reworded from US Energy Policy Act of 2005, sec. 1252. Smart metering

See also

Notes and references


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Risk-based pricing — is a methodology adopted by many lenders in the mortgage and financial services industries. The interest rate on a loan is determined not only by the time value of money, but also by the lender s estimate of the probability that the borrower will …   Wikipedia

  • Contribution margin-based pricing — maximizes the profit derived from an individual product, based on the difference between the product s price and variable costs (the product s contribution margin per unit), and on one’s assumptions regarding the relationship between the… …   Wikipedia

  • Pricing — is one of the four p s of the marketing mix. The other three aspects are product, promotion, and place. It is also a key variable in microeconomic price allocation theory.Price is the only revenue generating element amongst the 4ps,the rest being …   Wikipedia

  • Pricing strategies — for products or services include the following: Contents 1 Competition based pricing 2 Cost plus pricing 3 Creaming or skimming 4 Limit pricin …   Wikipedia

  • Time Is Money (pricing game) — Time Is Money was a pricing game on the American television game show The Price Is Right . Played from the Season 32 premiere on September 22, 2003 until April 30, 2004, it was played for a four digit prize worth more than $3,000, and used… …   Wikipedia

  • Time Warner Cable — Type Public Traded as NYSE: TWC Industry Communications …   Wikipedia

  • pricing grid — USA In the context of finance, a grid used to determine the applicable margin based on a performance measurement such as the credit rating of the borrower (or the loans) or the borrower s leverage ratio at a given point in time. The effect is… …   Law dictionary

  • Congestion pricing — Typical traffic congestion in an urban freeway. Shown here I 80 Eastshore Freeway, Berkeley, United States …   Wikipedia

  • Road pricing — is an economic concept regarding the various direct charges applied for the use of roads. The road charges includes fuel taxes, licence fees, parking taxes, tolls, and congestion charges, including those which may vary by time of day, by the… …   Wikipedia

  • Transfer pricing — refers to the pricing of contributions (assets, tangible and intangible, services, and funds) transferred within an organization. For example, goods from the production division may be sold to the marketing division, or goods from a parent… …   Wikipedia


We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.