One dynamic that's underestimated in markets where the optionality of substantial non-marginal costs (CapEx, RegEx, etc) is amortized over volume (rather than o

One dynamic that's underestimated in markets where the optionality of substantial non-marginal costs (CapEx, RegEx, etc) is amortized over volume (rather than optionality charges: access charges) is that a 10% decrease in use will never (in the long run) result in a 10% decrease in costs of the product. i.e. Consider a Crusoe economy, where you buy a magic box that supplies free electricity 99% of the time. Do your electricity costs (in the long run) go down 99%? No because the electricity supplier will now have to amortize all their costs over the 1% time when you need to buy electricity. Regulation delays this (inevitable) blow up, allowing the magic-box seller to oversell the market before prices are allowed to adjust to snap down to what would have been the post-magic-box equilibrium without regulatory friction. Electric-utility arbitrage batteries are basically physical call-option contracts: you pay a premium for the right to purchase electricity below market rate. The question for a firm assessing this gambit is, is the ratio of the premium to in-the-money(ITM) payoff time profile worth the premium.