The Pricing of Inputs Sold to Competitors: A Response

Abstract

William J. Baumol and J. Gregory Sidak propose that firms controlling competitive access sell those inputs to their competitors at prices that reflect (1) direct per unit incremental cost plus (2) the opportunity cost to the input supplier of the sale of a unit of input. The purpose of this Response is to question the authors' claims of general applicability for their theory. Rules for pricing competitive access must follow from the broad vision of the appropriate regulatory transition to deregulation and not vice versa. Different regulatory regimes and different factual circumstances will produce different rules governing competitive access, including the rules for pricing access.