We show that application of the so-called "Market Determined Efficient Component Pricing Rule," the "Efficient Component Pricing Rule," and, in general, of pricing rules that are based on private opportunity costs would perpetuate pricing inefficiencies and result in lower social surplus than pricing which is based on social opportunity cost rather than private opportunity costs.

Key words: Networks, Access, Complementarity, Public Policy

JEL classification: L13, L40

Forthcoming in (Ed) Shampine, A. [2003], Down to the Wire: Studies in the Diffusion and Regulation of Telecommunications Technologies. Nova Science Publishers, Inc., New York, NY

* I thank Glenn Stover and participants in the American Enterprise Institute conference on "Costs and Pricing in Telecommunications" for their helpful comments.

** Stern School of Business, New York, NY 10012, tel. (212) 998-0864, fax (212) 995-4218, e-mail: neconomi@stern.nyu.edu, www: http://www.stern.nyu.edu/networks/

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