A guide to cross- subsidization and price predation: Ten myths

Sanford Berg and Dennis L. Weisman

Telecommunications Policy, 1992, vol. 16, issue 6, 447-459

Abstract: This article outlines the economic principles necessary for understanding the issues of cross-subsidization and price predation using a series of straw men, or myths, involving regulatory costing and pricing. It is shown that to ensure that a firm is not cross-subsidizing it is sufficient that each product individually and every possible subset of the product line pass the net incremental cost test. Alternatively, the stand-alone cost test yields equivalent information when the firm is constrained to earn a non-excessive rate of return on investment.

Date: 1992
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