 discovery of a free public For a general model of peak loading pricing with a neoclassical production function, see Panzar (1976). For a discussion of the effects of cost functions on peak-load pricing, see Mitchell and Vogelsang (1991). Pricing Network Services C'(K) (K)(K) Figure 3.7. The optimal level of network capacity with multiple time periods of usage. good. Of course, as with public goods generally, there is a tremendous temptation to free ride. Off-peak users would like to shift costs to peak users as much as possible. Regulators may believe that by granting retail, wholesale, or unbundled access off peak there should be no costs because capacity is only there to serve the peak users. However, as with public goods, capacity reflects the sum of benefits at least across those periods where there is full capacity utilization. With variable costs of usage that depend on the capacity of the network overall, this requires all periods to contribute to the cost of capacity (Panzar 1976). Accordingly, the costs of access generally should be carried by all users regardless of the period in which their usage occurs. The amount of costs can certainly vary with the intensity of usage in each period. However, variations in demand by time of use need not support free riding. To illustrate the discussion, suppose that benefits are independent across time periods, which is a standard assumption in the literature on time-of-use pricing. Then B(Qt) denotes benefits in time period t. Suppose further that marginal ben- efits are positive at full capacity in each period, even though marginal benefits vary across time periods. Then, because the efficient amount of capacity equates the sum of marginal benefits to marginal cost, the solution can be illustrated as in Figure 3.7. This analysis demonstrates that greater consumption benefits in any period, including off-peak periods, raise total benefits and also increase the total of marginal benefits. The result is that the efficient level of capacity is increased by greater off