Benchmarking:

In benchmarking, a firm is compared to similar firms in other markets while fixing prices. On the basis of relative cost efficiency rewards or penalties are given to the firm. The firm is expected to perform at par with other firms in similar conditions. Here the difficult task is identification of similar firms as the markets are different. Statistical techniques are used while comparing the performance of firms so that control for dissimilar variables can be taken into account.

The central idea in price regulation is that monopoly firms should charge the prices that would prevail in a competitive market. We find several instances around us where the firm has to take approval of the regulator by before changing its prices.