Cite as: 535 U. S. 467 (2002)
Opinion of Breyer, J.
they encourage new firms to use the incumbent's facilities when it is significantly less expensive, economically speaking, for the entrant to do so. They point out that prices that approximately reflect an actual incumbent's actual additional costs of supplying the services (or "element") demanded will come close to doing both these things. See Kahn 330 (prices set at "incremental cost," the cost of supplying an added "increment," will give challengers the "proper target at which to shoot" only if that cost reflects "the cost that society will actually incur if they purchase more" or the resources that it would save if they purchase less); Knieps, Interconnection and Network Access, 23 Ford. Int'l L. J. 90 (2000); see also J. Sidak & D. Spulber, Deregulatory Takings and the Regulatory Contract (1998) (arguing that a market-determined efficient component pricing rule (M-ECPR) satisfies these objectives and that the FCC has misunderstood the M-ECPR system). But prices like the Commission's, based on the costs that a hypothetical "most efficient" firm would incur if hypothetically building largely from scratch, Order ¶ 685, would do neither. Indeed, they would do exactly the opposite, creating incentives that hinder rather than further the statute's basic objective.
First, the critics ask, why, given such a system, would a new entrant ever build or buy a new element? After all, the Commission's ratesetting system sets the incumbent's compulsory leasing rate at a level that would rarely exceed the price of building or buying elsewhere. That is because the Commission's ratesetting system chooses as its basis the hypothetical cost of the most efficient method of providing the relevant service—i. e., the cost of entering a house through the use of electrical conduits or of using wireless (if cheaper in general), and it then applies those costs (based on, say, hypothetical wireless) as if they were the cost of the system in place (the twisted pair of wires). Why then would the new entrant use an electrical conduit, or a wireless system, to enter a house when, by definition, the Commis-
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