l, frictionless world in which all welfare-enhancing transactions clear instantly. Over time, competition tends to drive the market prices of outputs and the costs of production together, SO that ideally the purchase cost 2 One classic example of this phenomenon is the widespread failure of the power grid across much of the western United States in August 1996. The failure of a single transmission line in western Oregon interacted with a handful of other seemingly similarly minor discrepancies in the system to plunge 7.5 million people into darkness within a matter of minutes (Watts 2003, pp. 21-23). A similar problem occurred in August 2003, when the failure of three high-voltage transmission lines in Ohio cut off power to 50 million people in the northeastern and midwestern United States and parts of Ontario, Canada (see Chapter 5). Introduction of inputs would represent a good approximation to the earning potential and thus the market value of those inputs. In practice, however, both purchase cost and market value are moving targets. Improvements in production technology, innovations in goods and services, shifts in consumer demand, entry and exit by producers, and changes in factor prices represent exogenous shocks that temporarily prevent the market from reaching general equilibrium, during which time the market value of inputs deviates from their initial cost. The greater the rate of change of technology and other forces, the greater this disparity is likely to be. Given the unpredictability of such changes, the deviations from market value caused by basing access prices on the cost of the inputs used to create the network will tend to lead to gluts or shortages and will eventu- ally induce entrants to over- or underinvest in certain types of network capacity. Furthermore, basing access prices on input costs ignores the fact that the whole is typically greater than the sum of its parts. So long as a firm is efficient and creative, the value of the services it provides is likely to exceed the cost of the inp