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TELRIC Pricing with Vintage Capital

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  • Mandy, David M

Abstract

We study the dynamic effects of technical progress on competitive prices. The model facilitates comparison between competitive prices and the TELRIC prices the FCC adopted for determining universal service subsidies. The prices differ due to differences in (1) discount factors, (2) the stream of operating costs, and (3) the method used to discount revenues. A calibrated comparison reveals the last difference as most important, with TELRIC prices understating competitive prices by billions of present value dollars nationwide. Competitive prices can be derived without any depreciation assumptions, contrary to regulatory practice, but cannot be calculated in advance of costs once capital utilization is endogenized. Copyright 2002 by Kluwer Academic Publishers

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  • Mandy, David M, 2002. "TELRIC Pricing with Vintage Capital," Journal of Regulatory Economics, Springer, vol. 22(3), pages 215-249, November.
    • Handle: RePEc:kap:regeco:v:22:y:2002:i:3:p:215-49
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    Citations

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    Cited by:

    1. Guthrie, Graeme & Small, John & Wright, Julian, 2006. "Pricing access: Forward-looking versus backward-looking cost rules," European Economic Review, Elsevier, vol. 50(7), pages 1767-1789, October.
    2. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    3. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
    4. repec:vuw:vuwscr:18946 is not listed on IDEAS
    5. Evan Kwerel & Johathan Levy & Robert Pepper & David Sappington & Donald Stockdale & John Williams, 2002. "Economic Issues at the Federal Communications Commission," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 21(4), pages 337-356, December.
    6. David E. M Sappington, 2005. "On the Irrelevance of Input Prices for Make-or-Buy Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1631-1638, December.
    7. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 18946, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    8. Henry Ergas, 2009. "Error and Design: Economics in (and some Economics of) the Australian Competition Tribunal," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 16(3), pages 71-94.
    9. Weisman, Dennis L., 2002. "Is there 'Hope' for price cap regulation?," Information Economics and Policy, Elsevier, vol. 14(3), pages 349-370, September.
    10. Rogerson William P, 2011. "On the Relationship Between Historic Cost, Forward Looking Cost and Long Run Marginal Cost," Review of Network Economics, De Gruyter, vol. 10(2), pages 1-31, June.
    11. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.

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