The Pricing of Inputs Sold to Competitors

33 Pages Posted: 2 Nov 2001

See all articles by William J. Baumol

William J. Baumol

New York University - Stern School of Business, Berkley Center for Entrepreneurial Studies; Leonard N. Stern School of Business - Department of Economics

J. Gregory Sidak

Criterion Economics, L.L.C.

Abstract

Local telephone companies have long been regulated as natural monopolies. However, technological innovation and the prospect of falling regulatory barriers to entry now expose some portions of the local exchange to competition from cable television systems, wireless telephony, and rival wireline systems. Nevertheless, it is probable that certain parts of local telephony will remain naturally monopolistic. In these cases the local exchange carrier must be permitted to sell necessary inputs to its competitors in the market for final telecommunications products at a price that reflects all its costs, including opportunity costs. This essay explains in nontechnical terms the derivation and logic of the efficient component-pricing rule, or ECPR. The authors' analysis applies to any network industry. Thus, it is useful in antitrust analysis of essential facilities and in regulatory analysis of transportation, energy transmission, pipelines, and mail delivery.

JEL Classification: D42,K0,K2,K21,K23,L4,L5,L12,L51,L9,L96

Suggested Citation

Baumol, William J. and Sidak, J. Gregory, The Pricing of Inputs Sold to Competitors. Yale Journal on Regulation, Vol. 11, No. 1, pp.171-202, Winter 1994. Available at SSRN: https://ssrn.com/abstract=289386 or http://dx.doi.org/10.2139/ssrn.289386

William J. Baumol

New York University - Stern School of Business, Berkley Center for Entrepreneurial Studies ( email )

New York, NY
United States
212-998-8943 (Phone)
212-995-3932 (Fax)

Leonard N. Stern School of Business - Department of Economics

269 Mercer Street
New York, NY 10003
United States

J. Gregory Sidak (Contact Author)

Criterion Economics, L.L.C. ( email )

1717 K Street, N.W.
Washington, DC 20006
United States
(202) 518-5121 (Phone)

HOME PAGE: http://www.criterioneconomics.com

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