Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
479182 | European Journal of Operational Research | 2007 | 8 Pages |
Abstract
This paper studies optimal access pricing for natural monopoly networks with large sunk costs and uncertain revenues. Using techniques from the option pricing literature, we show that the optimal access price corresponds to a risk-free form of the Efficiency Component Pricing Rule (ECPR), that is, where the opportunity cost is based on the risk free rate of return. We also show that at levels of revenue above the optimal level that triggers entry, the entrant should pay a premium above risk-free ECPR that rewards the incumbent for relinquishing his rights to the risky cash flows at the higher revenue level.
Related Topics
Physical Sciences and Engineering
Computer Science
Computer Science (General)
Authors
Ephraim Clark, Joshy Z. Easaw,