The term peripheral auditory compression refers to the fact that the whole range of audible sound pressure levels is mapped into a narrower range of auditory nerve responses. Peripheral compression is the by-product of independent compressive processes occurring at the level of the basilar membrane, the inner hair cell (IHC), and the auditory nerve synapse. Here, an electrical-circuit equivalent of an IHC is used to look into the compression contributed by the IHC. The model includes a mechanically driven transducer potassium (K(+)) conductance and two time- and voltage-dependent basolateral K(+) conductances: one with fast and one with slow kinetics. Special attention is paid to faithfully implement the activation kinetics of these basolateral conductances. Optimum model parameters are provided to account for previously reported in vitro observations that demonstrate the compression associated with the gating of the transducer and of the basolateral channels. Without having to readjust its parameters, the model also accounts for the in vivo nonlinear IHC transfer characteristics. Model simulations are then used to investigate the relative contribution of the transducer and basolateral K(+) currents to the nonlinear IHC input/output functions in vivo. The simulations suggest that the voltage-dependent activation of the basolateral currents compresses the DC potential for stereocilia displacements above approximately 5 nm. The degree of compression exceeds 2-to-1 and is similar for all stimulation frequencies. The AC potential is compressed in a similar way, but only for frequencies below 800 Hz. The simulations further suggest that the nonlinear gating of the transducer current is responsible for the expansive growth of the DC potential with increasing sound level (slope of 2 dB/dB) at low sound pressure levels.