flects the best combination of elements, unbundled access affects the network design problem in complex ways that extend far beyond the particular network elements affected by access. The reconfiguration of the system thus can involve many network elements that are not directly involved in access. Because competitors are given the choice of elements in unbundled access reg- ulation, there can be incentives to choose access strategically. Competitors not only will choose those elements they need to create their own system, but they also may choose elements that increase costs to the incumbent network. The firm obtaining unbundled access need only pay for the incremental costs of the elements it obtains under the TELRIC pricing system. However, the firm providing unbundled access pays for the system-wide reconfiguration costs and bears the costs of additional elements called for indirectly by unbundled access because they are not provided to competitors. Economic Effects of Regulating Access to Networks C. Transaction Cost Effects of Access Regulation If there is displacement of the network firm's demand on a one-for-one basis without any changes in traffic patterns on the network, then the effects of access include the opportunity costs of lost returns. The effects of access also include the transaction costs to the incumbent network firm that result from dealing with independent distributors. Such transaction costs are incurred whether or not there is displacement of the incumbent network's retail sales. 1. Retail Access The transaction costs of providing retail service are substantial. Telephone compa- nies engage in marketing and sales to individual customers, both households and businesses. They perform the full range of marketing activities including advertis- ing, pricing, promotion, and product design. In contrast to product manufacturers, network firms are service providers who must meter network usage of individual customers including the time, duration, and distance of individual calls and usage of switc