Posted in Finance, Accounting and Economics Terms, Total Reads: 317
Definition: Revenue Cap Regulation
Utility companies are the ones that provide essential products/services to the public of a state. As we see in India, a lot of utility providers are single-players in their own industry as in the case of railways. So as to not let the monopoly status of such players exploit the industry, the government then passes an economic regulation which caps the total revenue that can be received by that industry.
This cap is usually adjudged carefully by taking into account factors such as the inflation, the savings factor etc.
Another way that governments achieve this is by using price cap regulation which stands in contrast to the revenue cap regulation. In case of price cap regulation, the prices are capped and are set by the produces. Another way could be by capping the rate of return that the monopolies can receive from their businesses. This rate of return regulation enforces and incentivizes the firms to operate with as much efficiency possible.