Access Pricing in Telecommunications by Organisation for Economic Co-Operation and Development

By Organisation for Economic Co-Operation and Development

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Held close to marginal cost) while final prices are loosely regulated or unregulated, the monopolist has an incentive to deny access in order to limit downstream competition, to earn greater rents in the downstream market. The opposite is true when access prices are loosely regulated and final prices are tightly regulated. One of the benefits of the global price cap is that, by treating access and final prices symmetrically, there is no incentive for the monopolist to prefer to sell at the access level or at the final level.

It may even be necessary to lower the access charges below the marginal cost of access. Examples in the telecommunications sector In order to make these principles more concrete, this section illustrates how these principles would be applied in the telecommunications industry through the use of several worked examples. Most of these examples will focus on local loop unbundling (“LLU”). LLU arises when the incumbent leases the local loop at wholesale prices to a rival to enable the rival to provide a range of telecommunications services.

11 ACCESS PRICING IN TELECOMMUNICATIONS – ISBN 92-64-10592-1 – © OECD 2004 31 1. THE THEORY OF ACCESS PRICING Box 2. Price discrimination and natural monopoly regulation Example 1: Consumers can be made better off by allowing the regulated firm to discriminate in the way it sets its prices. In some cases a regulated firm that is not allowed to discriminate may not be able to earn enough revenue to survive at all. Suppose that a monopolist produces two goods at zero marginal cost, and a joint fixed cost of $500.

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