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This paper aims to explore the three basic roles that access price plays: the collection of opportunity cost; the redistribution of profit; and the tools of exploiting competitors.

The paper uses the efficient component pricing rule.

According to the model constructed in this paper, it is found that, unless the basic commodities are the substitutes (independent) for combined goods, the opportunity cost arising from the access process is not necessarily positive. Besides, this analysis reveals that among the combined access prices there exist certain crowding‐out effects.

This paper finds that the access commodities' collusion equilibrium does not exist.

This paper adopts a more generalized set‐up to analyze the problem of access pricing. Besides, since the collection of opportunity cost is the most common and reasonable explanation for the existence of access pricing, this study conducts further analysis on this topic.

Asks whether the FCC is using the wrong cost model to try to balance incumbents of the US Telecommunications Act with new operators, to make things equal for all. Concludes that regulators around the world learn from the US’s experience in trying to avoid the use of cost proxy models and the consequences of their actions.

Telecommunications was traditionally considered a natural monopoly. However, in 1982 AT&T was required to give up its control of local telephone services. As economies of scale and scope pervade telecommunications services, the neoclassical perfect competition model could not be applied as a benchmark for regulation. Baumol’s theory of contestable markets was referenced in the design of the new telecommunications regulation regime that followed the AT&T divestiture.

This chapter analyzes from a partially first-hand perspective Baumol’s contributions to the economics of telecommunications. After the AT&T breakup, a key issue to address was the access to the so-called last mile of copper wire owned exclusively by the local monopolies. Baumol together with his colleague Gregory Sidak claimed it was necessary to provide access to interconnection to all qualified applicants. Baumol and Willig proposed a pricing rule, which they argued ensures efficiency in the allocation of bottleneck input resources. The so-called parity-pricing formula is presented and discussed.

The developments in the telecommunications industry that took place during the last 25 years are pointed out, particularly the role played in them by mobile phones. Interconnection was also a vital element for them, and Baumol’s contributions are still a point of reference in this area. The chapter concludes with some reflections on Baumol’s methodological views based on personal correspondence.

A federal district court injunction in Illinois will reverberate beyond the Land of Lincoln by reaffiriming policy and law for local phone competition in the USA. Chief District Judge Charles P. Kocoras reminded legislators, regulators and telecommunications executives that state regulators are to employ federal telecommunications law and policy, specifically total element long run incremental pricing (TELRIC) for unbundled network elements (UNE‐s), to administer markets for local telephone services. The genius of the decision resides in its fidelity to sedulous implementation of telecommunications statute and precedents, and by so doing, in sustaining public policy that enhances consumer welfare, stimulates investment and spurs innovation.

The competition and regulatory economics literature has developed indicators that detect whether a vertically integrated provider (VIP) is engaging in market exclusion in the form of an anticompetitive price squeeze and non-price discrimination leading to sabotage of downstream competitors. Weisman integrates these indicators by developing a safe-harbor range within which a profit-maximizing VIP engages in neither form of market exclusion. Downstream retail competition that depends on the VIP’s inputs imposes upward pricing pressure on the downstream prices, with the amount of such pressure increasing as the downstream products become more homogeneous (closer substitutes). We analyze the implications of upward pricing pressure for antitrust evaluations of a duty to deal, regulatory policies mandating wholesale inputs for entrants, and vertical mergers. We find, for example, no basis to oppose a merger in which the VIP was previously required to supply inputs to rivals at unregulated prices.

Studies the theory of vertical integration, and examines the benefits both to the firm and to society. Looks at the reasons which might precipitate an increase in integration: technical economies of scope; economics of internal production resulting from market failure; and pursuit of aggrandizement or monopoly power. Presents a parity pricing formula which proves that parity pricing is necessary for economic efficiency. Concludes that no firm can be described as totally unintegrated; rather it is a matter of optimal degree.

This paper aims to study the historical origins of margin squeeze cases in the USA and Europe.

The author compares and contrasts major margin squeeze investigations in the USA and the European Union (EU) in terms of the role of efficiency and fairness and shows their roots in the socialist calculation debate of the 1940s.

It was found that the USA and EU diverge in their approaches towards margin squeeze claims. While the USA case law focuses more on efficiency, the European Commission makes decisions based more on fairness and “protection of rivals”. This shows that political and ideological preferences influence legal decision-making.

The paper is limited to major cases in telecommunications. It leaves aside cases in other areas. Thus, the author cautions that the generalization of the findings of the paper to all margin squeeze cases, or competition policy in general, may be difficult.

While there is extensive literature on margin squeeze cases in the USA and EU, there is little work on the historical and ideological connections. The paper contributes to the literature by drawing attention to political influences over technical decisions.

This chapter integrates two separate branches of the law and economics literature to demonstrate the two-sided risk of market exclusion by a vertically integrated firm (VIF) with upstream and downstream market power. The ratio of downstream (retail) to upstream (wholesale) price-cost margins is key. A margin ratio that is “too low” can result in a vertical price squeeze, whereas one that is “too high” can create incentives for the VIF to engage in non-price discrimination or sabotage. A price squeeze occurs when a rival is inefficiently foreclosed because the upstream (input) price is too high relative to the downstream (output) price. Sabotage arises when the VIF raises its rivals' costs which, in turn, raises their prices and diverts demand from the rivals to the VIF. Displacement ratios delineate the range of safe harbor margin ratios within which neither form of market exclusion arises. The admissible range of these margin ratios is decreasing in the degree of product substitutability and reduces to a single ratio in the limit as the competing products approach perfect substitutes. The policy challenge is to apply these pricing constraints judiciously to prevent market exclusion in accordance with a consumer-welfare standard, while recognizing the risk that these protections can be appropriated and used strategically in the errant pursuit of a competitor-welfare standard. These issues may take on greater prominence in light of the recent release of the DOJ/FTC draft vertical merger guidelines.