Access and Interconnection Pricing: How Efficient is the “Efficient Component Pricing Rule”?

Abstract

As technological changes and legal-regulatory changes have created more opportunities for competition in activities that are complementary to a still-regulated bottleneck facility, the policy relevance of the access pricing question has been heightened. The efficient component pricing rule (ECPR) has a seductive logic: It ensures that a rival producer of the complementary component can provide service only if that producer is at least as efficient as the monopolist in the production of the complementary component; i.e., the ECPR ensures that production will not be diverted to an inefficient producer. The ECPR’s apparent strength—its exclusion of an inefficient rival—may also be its drawback when the monopolist is charging high prices (in excess of all relevant marginal costs) for the complementary component. In the presence of economies of scale in the production of the bottleneck service and/or the complementary component, the ECPR is again unlikely to provide a first-best pricing outcome.