econ 461 essay 2 - Start from page 105, pricing themes

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Start from page 105, pricing themes Neoclassical Economic Concerns: Control prices and the number of firms in the market Natural monopolies are inefficient for society and regulation is needed to  foster competition because monopolists  Political Issues: Allais Rule: Firms do not have the incentive to minimize costs,  informational asymmetry on the regulator.  Can lead to shady business and  political tactics. Any complication in setting prices under the ECPR method increases the  probability of regulatory capture.  CAPTURE THEORY.  If the regulator has  a lot of power and discretion, a monopoly could devote more money and  resources to sway the mind of the regulator.  This can lead to a waste of  resources and a poor pricing structure. Neoclassical economic concerns: Setting access prices based on use can be difficult to implement because it is very hard to calculate the correct prices in a rapidly changing industry like telecommunications. Also, any complications in setting prices increase the probability of regulatory capture. The more discretion the regulator has, the more effort the industry will devote to influencing the outcome. This could result in a waste of resources in the lobbying effort.
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This note was uploaded on 10/11/2010 for the course ECON 461 taught by Professor Shannon during the Spring '10 term at University of Maryland Baltimore.

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econ 461 essay 2 - Start from page 105, pricing themes

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