Opening Networks to Competition: The Regulation and Pricing of Access. David Gabel and David Weiman

Opening Networks to Competition: The Regulation and Pricing of Access. David Gabel and David Weiman 94 BOOK REVIEW The two other analytical papers on pricing are perhaps less useful additions. In their paper on the appropriate markup pricing rule to use to determine the price an entrant should pay in exchange for ‘hooking up’ to the incumbent’s sys- tem, Mitchell and Vogelsang argue that continued regulation is necessary. Unfor- tunately, the many and varied complexities that they then show will inevitably arise in the regulatory process, cannot help but lead one to question whether such regulation is really worthwhile. There is first the problem of defining the right cost concept and getting its measurement right. The latter is difficult even if the regulatory bureaucracy is efficient, which of course may well not be the case. As an illustration of just one of the problems that must be confronted, consider the case when the incremental costs of interconnection are less than the stand-alone costs of producing the same volume of interconnected service. This could happen either because of scope or scale economies. How is the true interconnection cost to be defined? There is the additional issue of whether the interconnection costs should include the foregone profit contribution resulting from a shift in demand toward the http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Opening Networks to Competition: The Regulation and Pricing of Access. David Gabel and David Weiman

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1023/A:1007787725018
Publisher site
See Article on Publisher Site

Abstract

94 BOOK REVIEW The two other analytical papers on pricing are perhaps less useful additions. In their paper on the appropriate markup pricing rule to use to determine the price an entrant should pay in exchange for ‘hooking up’ to the incumbent’s sys- tem, Mitchell and Vogelsang argue that continued regulation is necessary. Unfor- tunately, the many and varied complexities that they then show will inevitably arise in the regulatory process, cannot help but lead one to question whether such regulation is really worthwhile. There is first the problem of defining the right cost concept and getting its measurement right. The latter is difficult even if the regulatory bureaucracy is efficient, which of course may well not be the case. As an illustration of just one of the problems that must be confronted, consider the case when the incremental costs of interconnection are less than the stand-alone costs of producing the same volume of interconnected service. This could happen either because of scope or scale economies. How is the true interconnection cost to be defined? There is the additional issue of whether the interconnection costs should include the foregone profit contribution resulting from a shift in demand toward the

Journal

Review of Industrial OrganizationSpringer Journals

Published: Oct 15, 2004

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