Cost Accounting: What is Peak Load Pricing?

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.

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Transcript

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pay thirty or forty or fifty The biggest uber mover

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twelve thirty two a M January one Yeah drunk New

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Year's Eve Post partiers desperate to get home for the

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ensuing annual with you know porcelain Goddess So peak load

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or peak demand season or peak demand Ours happen when

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demand you know peaks like there's lots of it Lots

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of demand and pricing toe optimize profits derived from the

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fact that at peak demand times there is either just

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tons of demand or that the demand curve in this

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period is vertical like people will pay almost anything for

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that New Year's ride home If it normally cost twenty

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bucks it can cost one hundred and people will pay

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Why Well because the marginal value of that hundred bucks

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is way cheaper than a running your car into a

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tree Be running your car into a human see having

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do I tickets and jail time that would ensue and

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d twenty years of psycho analysis to help you deal

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with the fact that you ran over one of the

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young actors from modern family So peak load pricing used

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to be a huge thing in long distance calling like

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during business hours when businesses that were well more or

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less price insensitive to the cost of a phone call

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it was a rounding error in the course of doing

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their business would do anything or pay anything for that

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call from New York to Florida or London or wherever

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they were calling two bucks a minute Find four bucks

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Fine just make the call It was such high pricing

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that a lot of consumers simply did not make the

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call and the phone companies feared regulatory backlash and also

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wanted to take advantage of the consumer demand at cheaper

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prices So when Peak crest sted and the night set

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in like between say ten P M and seven A

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M prices were cut massively for long distance phone calls

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like by half or by two thirds There was another

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reason for the peak load pricing as well In those

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days Priest Skype and Google Hangout phone companies were circuit

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switch not packet switch which meant that there were in

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fact line capacity Maximums that were hit went like eight

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percent of the country tried to use the phone lines

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all of the same time So to scale up for

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nine or ten or twelve or fifteen percent of the

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country using the phone lines all at the same time

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it cost the phone companies of Fortune and they wanted

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to get paid back for their efforts So the higher

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prices matched their higher marginal costs in providing that infrastructure

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Well all that went away with Internet telephony But the

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scar still exist on the population who grew up under

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that iron fisted telephony rule So where is peak load

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pricing today In oldie worldly things electricity will the same

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physics that hit phone companies hit electricity producers as well

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On ly so much power can be generated at cheap

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fish prices on the grid at once And if demand

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exceeds their maximum who bad things happen like the whole

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system overheat and shut down as a safety precaution avoids

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fires or the local power company's has toe by power

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from others in some form and then ship that power

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locally and it's a whole mess So power companies charge

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big peak load prices and highly encourage laundry doing after

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midnight when very few people are sucking from the electric

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teet And there is a ton of excess or slack

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capacity in the system to remember all that the next

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time there's a brownout from a hot day when everyone's

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blasting a C units on high and eliminate is on

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tap and they only their doors open and it's just 00:03:47.868 --> [endTime] very cranky