e has placed too much focus on static efficiency and given too little emphasis to the maximization of dynamic efficiency. When competitive entry is possible, the traditional regulatory tools can have a detrimental impact on incentives to invest in alternative network technologies. So long as competitive entry remains feasible, supracompetitive returns should not prove sustainable over the long run, and prices should tend toward competitive levels. In the short run, however, shifts in demand, changes in technology, and other exogenous changes can cause markets to deviate from their long-run equilibrium position. When this is the case, prices that permit short-run supracompetitive returns allocate the scarce network resources, signal industry participants that the market is in short-run disequilibrium, and provide incentives to invest in additional network capacity. The emphasis on short-run economic profits is sometimes mistakenly com- pared to the type of competition proposed by Joseph Schumpeter (1942), in which the market is dominated by a series of monopolists and firms compete by vying to discover the next breakthrough innovation that will give them a cost or quality advantage decisive enough to allow them to displace the current monopolist and dominate the market in its place. This argument ignores the key role that short- run supracompetitive returns play in horizontal competition within a market, in which multiple players offer substitute products to consumers and in which any See Krattenmaker and Salop (1986); Ayres (1988); Salinger (1988); Hart and Tirole (1990); Klass and Salinger (1995); Riordan and Salop (1995). 34 See Page (1989); Jacobs (1995); Muris (2001). See Cooper et al. (2005); LaFontaine and Slade (2008). Network Regulation Basics supracompetitive returns will prove transient and quickly dissipated. In fact, using regulation to prevent the earning of supracompetitive returns would eliminate the primary impetus for competitive entry, in which case the supply curve would never shift outward to 