3.6 - RPI - X

Question 1

What is RPI - X?

Answer 1

Price regulation system
Restricts amount firms can increase prices

Question 2

What does X represent?

Answer 2

Amount prices must be cut by in real terms

Question 3

How does RPI-X work?

Answer 3

Firms can increase prices by value of RPI - real price cut

Question 4

Which alternative formula may be used?

Answer 4

RPI +/- K
K represents required rate of investment

Question 5

What are the advantages of RPI-X?

Answer 5

Efficiency incentive
Flexible system
Helps real household incomes
Regulator can act in consumer interest

Question 6

How does information provision benefit RPI-X?

Answer 6

Informed regulator
Aware of Marginal cost
Can set price in interest of allocative efficiency

Question 7

What are the potential disadvantages of RPI-X?

Answer 7

Regulatory capture
Strict => Limits investment
Fewer incentives to cut costs
Doesn’t consider performance/quality

Question 8

How can RPI-X reduce incentives to cut costs?

Answer 8

When efficiency increases, regulator may just increase X value