The price structure of an enterprise within a regulated industry is free of cross-subsidization when prices move freely between the boundaries of the "stand-alone costs" and the "incremental costs".

 

Consider two services A and B. The stand-alone-cost test requires that the respective revenues do not exceed the stand-alone costs which are incurred on provision of only one of these services.

 

If revenues exceed the stand-alone-costs, the provision of service A could be a potential source of cross-subsidization of the other service B, i.e. buyers of service A who are providing the cross-subsidy would be better off if service A was offered independently of service B.

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