he network firm to exercise the right that businesses typically enjoy to refuse to deal with other firms as they see fit and simply decline to meet the excess demand. To the extent that the network firm is subject to retail access, this response is foreclosed. A related problem exists if the actual network demand diverges from expecta- tions. If demand falls short of expectations, Da (p) will be to the left of De(p). Such an occurrence is not likely to require significant reconfiguration of the network. Over the long run, the natural response is to reduce capacity to meet the lower demand. In the short run, the network owner can compensate by dropping price in order to bring the market back into equilibrium. A different situation arises if actual network demand exceeds expectations, as represented in Figure 5.1. In this case, the network owner lacks sufficient capac- ity to satisfy the increase in demand and faces three possible solutions to the excess demand for capacity. The first solution is the expansion of network capacity through investment in facilities, or through the entry of additional firms to pro- vide network services. Although this response may be feasible over the long run, the fact that capacity expansions take some time may render it infeasible in the short run. The second solution is to increase the prices of retail access to give incentives for consumers to reduce demand along the demand curve. 13 The price of retail 13 Indeed, the economics of congestion supports the notion that a price increase would be a particularly appropriate response. As we discuss in Chapter 12, the standard result is that prices should be set equal to the customer's marginal contribution to congestion. The unexpected increase in demand naturally means that, for a given capacity, congestion would be higher than expected, and thus that the congestion cost associated with adding an additional user would also be higher (Sidak and Spulber 1998). Networks in Telecommunications De(p) Da(p) Dalp* Figure 5.1. Excess demand for 