An Efficient Avoided Cost Pricing Rule for Resale of Local Exchange Telephone Services.

The Telecommunications Act of 1996 requires incumbent local exchange telephone companies to make their retail telecommunications services available to resellers at a discount that reflects the costs that will be avoided by providing the services at wholesale rather than at retail. In this article, we develop a pricing methodology to apply to such wholesale services. The methodology, which we label the Avoided Cost Pricing Rule, is designed to generate an economically efficient discount that may be applied to the incumbent local exchange carriers' services that are offered to resellers. Copyright 1997 by Kluwer Academic Publishers