ket. Total retail and wholesale demand for the network firm's services can increase, depending on the character- istics of the firms that purchase wholesale access and the types of services that they offer. Let the expected retail demand for network services without wholesale access be given by Q = D°(p). Again, the network firm will configure its network SO that Networks in Telecommunications its capacity K equals the profit-maximizing quantity. The price that rations retail demand before access regulation is p*, which solves D°(p*) = K. The imposition of wholesale access puts the network owner in competition with firms that purchase wholesale access. Wholesale access may displace the retail access as the incumbent firm's customers purchase their retail services from the competitor. Let p be the regulated wholesale price of access, and let A = A(p,p) be the demand for wholesale access by the network firm's competitors. The demand for wholesale access depends on the network firm's retail price p to reflect retail competition with the firms that purchase wholesale access. Let Q = rep- resent the retail demand for the network firm's services after access is granted. The demand for the network firm's retail services depends on the price of wholesale access because the price of wholesale access affects the prices that competitors can charge for their retail services. Total retail and wholesale demand for the network firm's services can increase or decrease. This means that D( p, p) + A( p, p) may be greater than, equal to, or less than D°( p). The regulated price of wholesale access will affect the retail demand for the incumbent firm's services and the demand for wholesale access. Wholesale access need not be a problem if total demand falls or if there is sufficient excess capacity to satisfy the increased demand. If p* is the initial price, and p is the regulated wholesale rate, then the incumbent firm may accommodate the shift in demand to wholesale users in the short run if D(p*, p) + A(p*, p) < K. The price of r