The fourth section draws this material together to make the case for marginal-cost pricing
. The fifth and last section of the paper discusses implementation of this policy.
The F.C.C.'s marginal-cost pricing
theory, on which its access charge proposal is based, is little more than blue smoke and mirrors.
First, [Theta]([Pi]) = [infinity] would cause marginal-cost pricing
; however, this is ruled out for any relevant price (that is any price within the range of expected demand).
It is now well established that the ECPR holds as a first-best pricing principle only if a stringent set of assumptions holds:(5) the monopolist's price for the complementary service has been based on a marginal-cost pricing
rule; the monopolist's and rival producer's components are perfect substitutes; the production technology of the component experiences constant returns to scale; the rival producer has no market power; and the monopolist's marginal cost of production of the component can be accurately observed.
Through its exclusive focus on the American market and through its refusal to consider the impact of long-term (above) marginal-cost pricing
by producers operating out of a protected home market, the Court avoided the more complex issue of whether the standards for predatoriness should be adjusted for competitive circumstances unique to international trade.
For use below, a special notion of "consumer surplus" arising from such marginal-cost pricing
is defined here,