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Optimality and Sustainability: Regulation and Intermodal Competition in Telecommunications

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  • Michael A. Einhorn

Abstract

As regulators continue to open utility markets to entry, new market contestants may specialize in providing service for the utility's largest customers. Consequently, old utility pricing procedures may no longer be sustainable. Taking telecommunications regulation as an example, this article develops optimal pricing strategies for utilities that have large customers who have other attractive service options. I demonstrate that under an optimal nonuniform price schedule, utilities can legitimately price high-level usage below its associated marginal usage cost. Furthermore, customers will make economically efficient choices when deciding whether to forego utility service.

Suggested Citation

  • Michael A. Einhorn, 1987. "Optimality and Sustainability: Regulation and Intermodal Competition in Telecommunications," RAND Journal of Economics, The RAND Corporation, vol. 18(4), pages 550-563, Winter.
  • Handle: RePEc:rje:randje:v:18:y:1987:i:winter:p:550-563
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    Cited by:

    1. Johns Adam, 2012. "Contested Contestability: Competition Policy and the Development of Communications Satellite Broadcasting in Japan," Business and Politics, De Gruyter, vol. 14(2), pages 1-21, August.
    2. Joan Calzada, 2006. "Worksharing and Access Discounts in the Postal Sector with Asymmetric Information," Journal of Regulatory Economics, Springer, vol. 29(1), pages 69-102, January.
    3. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
    4. John A. Weinberg, 1994. "Selling Federal Reserve payment services: one price fits all?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-24.

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