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By Organisation for Economic Co-Operation and Development

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Although a full global price cap has not (yet) been tried, separate caps on final prices (and sometimes access prices) are found in a few countries (see the next chapter of this report). Two potential impacts devolving pricing flexibility to the monopolist also warrant comment. A well-known benefit of such flexibility is that any superior ACCESS PRICING IN TELECOMMUNICATIONS – ISBN 92-64-10592-1 – © OECD 2004 45 1. THE THEORY OF ACCESS PRICING Figure 4. Price caps on access services and final services Monopolist M 2.

In particular, it may be possible to use a two-part tariff for the access price. Note that such price discrimination at the access level requires knowledge by the regulated firm of the identity of the final customer and not just the identity of the firm purchasing the access input. In other words, the regulated firm must be able to trace to whom (or when or where) the corresponding final service is sold. This might not always be possible. We discuss further below the implications of the inability to price discriminate effectively at the access level.

This approach be can justified on the grounds that if any service (or group of services) earns a revenue below its incremental cost then it must be that some other service (or group of services) earns a revenue above the stand-alone cost. If it is feared 38 ACCESS PRICING IN TELECOMMUNICATIONS – ISBN 92-64-10592-1 – © OECD 2004 1. THE THEORY OF ACCESS PRICING that pricing above stand-alone cost will induce inefficient entry, the regulator may wish to ensure that the revenue for any service (or group of services) exceeds the incremental cost of that service.

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