The Access Pricing Problem: A Synthesis

Mark Armstrong, Chris Doyle and John Vickers

Journal of Industrial Economics, 1996, vol. 44, issue 2, 131-50

Abstract: The Baumol-Willig efficient component pricing rule states that it is efficient to set the price of access to an essential facility equal to the direct cost of access plus the opportunity cost to the integrated access provider. The authors analyze the relevant notion of 'opportunity cost' under various assumptions about demand and supply conditions, including product differentiation, bypass, and substitution possibilities, which all reduce opportunity cost compared to the benchmark case. They show that the Ramsey approach to access pricing developed by J.-J. Laffont and J. Tirole (1994) is closely related to the efficient component pricing rule provided opportunity cost is correctly interpreted. Copyright 1996 by Blackwell Publishing Ltd.

Date: 1996
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