ater than market transaction costs. Networks are vertically integrated when market transaction costs exceed organizational costs. Thus, the efficient boundary of a network firm is determined by tradeoff between costs of controlling the network within an organization and transaction costs of market coordination. The goal of regulatory policy should be to realize efficiencies in the formation of networks and the organization of network firms. The preceding discussion provides guidance for regulatory and competition policies toward networks. To the extent that markets realize efficient ownership structures and network design, regulatory and antitrust forbearance is appropriate. Public policy in the network industries, particularly compelled access, should be carefully chosen to avoid creating incentives to form inefficient networks. Economic Effects of Regulating Access to Networks Access regulations affect the boundaries of networks in a number of important ways. Mandatory access rules and access price regulations affect both the demand and supply of network services. Access regulations are also likely to increase the transaction costs of providing the various forms of access. Network firms compare the costs of market transactions with the governance costs of the network. Access regulations will affect the decisions of networks in terms of network boundaries, network architecture, and interconnection. If there are distortions in access pricing and in the associated costs of access transactions, firms will make incorrect decisions in designing networks. If access prices and transaction costs are too high due to regulation, some network firms will rely more on internal governance, which could lead to inefficient expansion of network boundaries. If access prices are too low due to regulatory controls, some network firms will have an incentive to reduce the provision of network services, which could lead to inefficient contraction of network boundaries. Distortions in access prices and transaction costs due to regulati