Long run incremental costs meaning

In regulatory and competition law practice, long run incremental costs (LRIC) are the additional costs caused by supplying a specified increment of output, assessed over a period long enough that all inputs, including capital investment, can be varied. It assumes the undertaking already produces some output and asks what extra cost would be avoided if the increment were not supplied. LRIC is widely used in economic regulation—especially telecommunications, but also energy, water and transport—to set cost‑oriented prices, determine interconnection and wholesale charges, inform margin squeeze and predatory pricing assessments, and design price controls. The term is not generally defined in primary legislation; its meaning follows economic usage and is specified in regulatory guidance and determinations (for example, by Ofcom and ComReg), and considered in judicial review or statutory appeals of those decisions. Key features include: a long‑run horizon where all costs are variable; focus on costs attributable to the defined increment; and exclusion of unrelated common costs unless a “LRIC+” approach is adopted to add a reasonable share of shared/common costs. Methodologies and usage are broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland, subject to sector‑specific instruments and consultations.