Revenue Cap Regulation:

Revenue cap regulation is similar to price cap regulation in the sense that the regulator establishes an I-X index, which in this case is called revenue cap index. It allows the firm to change prices so long as the percentage change in revenue does not exceed the revenue cap index. Revenue cap regulation is more appropriate than price cap regulation in situations where costs do not vary appreciably with unit of sales. For example, for electricity supply the major cost is distribution lines. Once the distribution lines are provided, increase in supply of electricity to one more household in the colony does not increase cost remarkably. Revenue cap regulation also does not require monitoring of prices; to see whether the service provider is over-charging or not.