Optimal access pricing for natural monopoly networks when costs are sunk and revenues are uncertain

@article{Clark2007OptimalAP,
  title={Optimal access pricing for natural monopoly networks when costs are sunk and revenues are uncertain},
  author={Ephraim Clark and Joshy Z. Easaw},
  journal={European Journal of Operational Research},
  year={2007},
  volume={178},
  pages={595-602}
}
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… CONTINUE READING
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