Network Effects in Telecommunications: When Entrants are Welcome
AbstractThis paper looks at the role of network effects in telecommunications markets. Network effects are said to exist when an existing user of a network benefits from any new user to the network. Even the expectation of a large network will positively influence users' willingness to pay. After the identification of network characteristics in telecommunications, the incentive to invite entry to an incumbent telecommunications firm is discussed. For the case of mobile tele-communications, the extension of network coverage is introduced as a potential means to commit to a large network size, influencing consumers' expectations. It turns out that with mobile telecommunications, increasing network coverage might even reinforce the incentive to welcome entrants.
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Bibliographic InfoPaper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 241.
Date of creation: 29 Dec 2000
Date of revision:
Find related papers by JEL classification:
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
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- Nicholas Economides, 1997.
"Network Externalities, Complementarities, and Invitations to Enter,"
- Economides, Nicholas, 1996. "Network externalities, complementarities, and invitations to enter," European Journal of Political Economy, Elsevier, vol. 12(2), pages 211-233, September.
- Armstrong, Mark, 1997. "Competition in Telecommunications," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 64-82, Spring.
- Ashiya, Masahiro, 2000.
"Weak entrants are welcome,"
International Journal of Industrial Organization,
Elsevier, vol. 18(6), pages 975-984, August.
- Valletti, Tommaso M., 1999. "A model of competition in mobile communications," Information Economics and Policy, Elsevier, vol. 11(1), pages 61-72, March.
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