Abstract
The Telecommunications Act of 1996 requires incumbent local exchange telephone companies to make their retail telecommunications services available to resellers at a discount that reflects the costs that will be avoided by providing the services at wholesale rather than at retail. In this article, we develop a pricing methodology to apply to such wholesale services. The methodology, which we label the Avoided Cost Pricing Rule, is designed to generate an economically efficient discount that may be applied to the incumbent local exchange carriers' services that are offered to resellers.
Similar content being viewed by others
References
Baumol, William J., Januusz A. Ordover, and Robert D. Willig. 1996. “Parity Pricing and its Critics: Necessary Condition for Efficiency in Provision of Bottleneck Services to Competitors.” C.V. Start Center for Applied Economics, New York University.
Baumol, William J., John C. Panzar, and Robert D. Willig. 1988. Contestable Markets and the Theory of Industry Structure. Harcourt Brace Jovanovich.
Baumol, William J., and Gregory Sidak. 1994. Toward Competition in Local Telephone. Cambridge, MA: MIT Press.
Beard, Randolph, and Henry Thompson. 1996. “Efficient Versus ‘Popular’ Tariffs on Regulated Monopolies.” Journal of Business. 69 (January): 75–87.
Blair, Roger D., Thomas E. Cooper, and David L. Kaserman. 1985. “A Note on Vertical Integration as Entry.” International Journal of Industrial Organization, 3: 219–229.
Bork, Robert H. The Antitrust Paradox. 2978: 365–381.
Bowman, Ward S. 1957. “Tying Arrangements and the Leveraging Problem.” Yale Law Review. 67: 19–36.
Carbajo, Jose, David de Mcza, and Michael Seidmann. 1990. “A Strategic Motivation for Commodity Bunding.” Journal of Industrial Economics. 38: 283–298.
Economics and Technology, Inc/Hatfield Associates. 1994. The Enduring Bottleneck: Monopoly Power and the Local Exchange Carriers.
Economides, Nicholas, and Lawrence J. White. Forthcoming. “The Inefficiency of ECPR Yet Again: A Reply to Larson.” The Antitrust Bulletin.
Economides, Nicholas, and Lawrence J. White. 1995. “Interconnection Pricing: How Efficient is the Efficient Components Pricing Rule?” The Antitrust Bulletin. 40: 557–579.
Federal Communications Commission. First Report and Order. In the Matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996.
Federal Communications Commission. Comments and Reply Comments, In the Matter of Implementation of the Local Exchange Provisions in the Telecommunications Act of 1996.
Huber, Peter W., and Michael K. Kellogg, and John Thorne. 1992. The Geodesic Network II: 1993 Report on Competition in the Telephone Industry. Washington: The Geodesic Co.
Kahn, Alfred E. 1984. “On the Road to More Intelligent Telephone Pricing.” Yale Journal on Regulation. 1(2): 139–158.
Kaplow, Louis. 1985. “Extensions of Monopoly Power Through Leveraging.” Columbia Law Review. 85(3):515–555.
Kaserman, David L., and John W. Mayo. 1996. “Local Exchange Competition Under Emerging Competition: Goardrails or Speedbumps on the Information Highway.” Working paper.
Kaserman, David L., and John W. Mayo. 1995. Government and Business: The Economics of Antitrust and Regulation. Ft. Worth: The Dryden Press. Ch.12.
Kaserman, David L., and John W. Mayo. 1994a. “Cross-Subsidization: Roadblocks on the Road to More Intelligent Telephone Pricing.” Yale Journal on Regulation. 11: 120–147.
Kaserman, David L., and John W. Mayo. 1994b. “Long-Distance Telecommunications: Expectations and Realizations in the Post-Divestiture Period.” in Incentive Regulation for Public Utilities, ed. by Michael A. Crew. Kluwer Academic Press, 83–111.
Kaserman, David L., and John W. Mayo. 1993. Monopoly Leveraging Theory: Implications for Post-Divestiture Telecommunications Policy. Center for Business and Economic Research, the University of TN, Knoxville.
Larson, Alexander C. Forthcoming. “The Efficiency of the Efficient Component Pricing Rule: A Comment.” The Antitrust Bulletin.
Leibenstein, Harvey. 1996. “Allocative Efficiency vs. X-Efficiency.” American Economic Review. 56: 392–412.
MacAvoy, Paul A. 1995. “The Failure of Antitrust and Regulation to Establish Competition in Markets for Long-Distance Telephone Services.” Working Paper, AEI Studies in Telecommunications Deregulation.
Ordover, J.A., A.O. Sykes, and R.D. Willig. 1985. “Nonprice Antitrust Behavior by Dominant Firms toward the Producers of Complementary Products.” Antitrust and Regulation: Essays in Memory of John J. McGowan. ed. by Franklin Fisher Cambridge, MA: MIT Press.
Panzar, John C. 1989. “Technological Determinants of Firm and Industry Structure.” in Handbook of Industrial Organization. ed. by Schmalensee and Willig. North-Holland. 1: 3–56.
Peltzman, Sam. 1976. “Toward a More General Theory of Regulation.” Journal of Law and Economics. 19 (August): 211–240.
Posner, Richard A. 1976. Antitrust Law: An Economic Perspective. 171–184.
Seidmann, Daniel J. 1991. “Bundling as a Facilitating Device: A Reinterpretation of the Leverage Theory.” Economica, 58: 491 ff.
Shin, Richard T., and John S. Ying 1992. “Unnatural Monopolies in Local Telephone.” RAND Journal of Economics. 23 (Summer): 171–187.
Sibley, David S., and Dennis L. Weisman. 1995. “Competitive Incentives of Vertically Integrated Local Exchange Carriers.” Mimco.
Temin, Peter. 1990. “Cross-Subsidies in the Telephone Network after Divestiture.” Journal of Regulatory Economics. 2: 349–362.
Weiman, David F., and Richard C. Levin. 1994. “Preying for Monopoly? The Case of Southern Bell Telephone Company, 1894–1912.” Journal of Political Economy. 102 (February): 103–126.
Whinston, Michael D. “Tying, Foreclosure, and Exclusion.” American Economic Review. 80: 837–859.
Wollenburg, Keith K. 1987. “An Economic Analysis of Tie In Sales: Re-Examining the Leverage Theory.” Stanford University Law Review. 39: 737 ff.
Rights and permissions
About this article
Cite this article
Kaserman, D.L., Mayo, J.W. An Efficient Avoided Cost Pricing Rule for Resale of Local Exchange Telephone Services. Journal of Regulatory Economics 11, 91–107 (1997). https://doi.org/10.1023/A:1007910531141
Issue Date:
DOI: https://doi.org/10.1023/A:1007910531141