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A guide to cross- subsidization and price predation : Ten myths

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  • Berg, Sanford V.
  • Weisman, Dennis L.

Abstract

This article outlines the economic principles necessary for understanding the issues of cross-subsidization and price predation using a series of straw men, or myths, involving regulatory costing and pricing. It is shown that to ensure that a firm is not cross-subsidizing it is sufficient that each product individually and every possible subset of the product line pass the net incremental cost test. Alternatively, the stand-alone cost test yields equivalent information when the firm is constrained to earn a non-excessive rate of return on investment.

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  • Berg, Sanford V. & Weisman, Dennis L., 1992. "A guide to cross- subsidization and price predation : Ten myths," Telecommunications Policy, Elsevier, vol. 16(6), pages 447-459, August.
    • Handle: RePEc:eee:telpol:v:16:y:1992:i:6:p:447-459
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    Cited by:

    1. Zhijun Chen & Patrick Rey, 2019. "Competitive cross‐subsidization," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 645-665, September.
    2. Jamison, Mark A., 1996. "General conditions for subsidy-free prices," Journal of Economics and Business, Elsevier, vol. 48(4), pages 371-385, October.

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