Abstract
The author responds to Vicery's defense of the conventional peak-load pricing model that allows for ex ante external subsidies when users have non-uniform capacity needs. Continuing the airport analogy, the author explores how the marginal cost of providing service to the first user denied use of the facility because of congestion is greater than that user's potential marginal benefit. The illustrations show that the conventional model fails to allocate resources efficiently. It is only with the broader view of marginal cost that the marginal benefit and cost of the marginal user are equal. Apparent marginal cost is for the case of heterogeneous users of a joint facility.
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