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
Review of Industrial Organization – Springer Journals
Published: Oct 15, 2004
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