formance by refusing to serve additional customers, they can allow prices to rise to ration existing network capacity, or they can allow service to degrade (by allowing the increased congestion to slow down network performance or by reducing network service in other ways) until demand shifts back into line with the available capacity. Retail access renders the first two of these options impossible, leaving the network with no option but to reduce the quality of network services even when doing SO will harm consumers and lead to inefficiencies. Direct regulation of rates can also be the source of large-scale inefficiencies. As noted in Chapter 8, regulatory authorities have long struggled with the proper manner of calculating the rate base. Approaches based on historical cost have the advantage of being more tractable, but run the risk of overcompensating capital assets that have become obsolete. Approaches based on replacement cost are more responsive to economic changes, but require undertaking the inherently specula- tive endeavor of updating costs to market levels. This task becomes all the more complicated if regulators base the replacement cost calculation not the structure of the actual network, but rather on the structure of a hypothetical network con- figured according to the best available technology. Cost-plus rate-setting regimes also fail to provide incentives for network owners to economize and, to the extent that they only allow rates of return to be earned on the rate base, can introduce a bias toward capital-intensive solutions (Averch and Johnson 1962). Experience with cable television has revealed the difficulties of regulating retail rates when the quality of the product being regulated varies, as will be the case with respect to broadband (Hazlett and Spitzer 1997; Crawford 2000). The implementation of rate regulation also harms the competitive process in other ways. The process of developing and filing tariffs and shepherding them through any challenges that arise during the regulatory approv