 between output prices and unit costs. Some firms will earn eco- nomic profits and others will suffer economic losses. Moreover, firms often change prices in anticipation of developments because they respond to buyers' and sellers' expectations of future market conditions. "The question of fact is thus whether entrepreneurs as a class receive on the average more or less than the normal competitive rate of return on the productive services of person or property which they furnish to the business. The question does not admit to any definitive answer on inductive grounds" (Knight 1921b, p. 364). Pricing of Access to Networks Even though competitive forces tend to move market prices toward cost through the exit or improvement of inefficient producers, the past costs of producing a good are likely to differ substantially from current and future costs. Costs fluctuate due to changes in input prices and technology. Market prices correspond more to current and forward-looking demand and supply conditions than to past costs. Traditional cost-of-service regulation at best adjusts prices to reflect past costs, thereby permitting regulated rates to depart substantially from market prices. The fundamental reason for this departure is that the economic cost of inputs used to produce some output is not the same as the market price or economic value of an output produced with those inputs. Thus, market prices are necessarily better than regulated rates based on the costs of production. B. Determining Market Price 1. Pricing Based on External Market Transactions Arguing that regulatory authorities should base network access rates on market prices leaves open the question of how to determine the prevailing market price. Market transactions constitute the most (if not the only) reliable indicator of individual preferences (Samuelson 1948). Thus, regulators should develop market benchmarks if they choose not to defer to market mechanisms for allocation. Under standard valuation techniques, the most reliable indicator of market price