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Monday, August 16, 2004

Regulators can't set rates
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Harold Furchtgott-Roth's axiom that "regulators can't set rates" is proven again by this morning's report by Anna-Marie Kovacs report on state wholesale pricing proceedings. Specifically, a number of states are grativating toward setting the price of vertical services on the loop at zero. This appears to be a two-fer, both embracing the marginal cost pricing fallacy and the joint and common costs fallacy.

There is only one wrong price, under any pricing methodology, for vertical services: zero. Now, any positive price that the regulators' set would be to some degree arbitrary and there is no rigorous way to divine the "right" price. Nevertheless, it is certain that the price must be positive. Only the bizarro-world of rate regulation could get the one wrong answer out of the infinite number of acceptable answers. See also, zero line-sharing rates, ranted about here, pages 112-118.

posted by Ray Gifford @ 4:25 PM | General

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