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Network Effects in Telecommunications: When Entrants are Welcome

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  • Heide Coenen
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    Abstract

    This 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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    File URL: http://www.vatt.fi/file/vatt_publication_pdf/k241.pdf
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    Bibliographic Info

    Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 241.

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    Date of creation: 29 Dec 2000
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    Handle: RePEc:fer:dpaper:241

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    Related research

    Keywords: Telecommunications; network effects; market entry;

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    1. Valletti, Tommaso M., 1999. "A model of competition in mobile communications," Information Economics and Policy, Elsevier, vol. 11(1), pages 61-72, March.
    2. Ashiya, M., 1998. "Weak Entrants are Welcome," ISER Discussion Paper 0468, Institute of Social and Economic Research, Osaka University.
    3. Armstrong, Mark, 1997. "Competition in Telecommunications," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 64-82, Spring.
    4. Nicholas Economides, 1997. "Network Externalities, Complementarities, and Invitations to Enter," Industrial Organization 9701004, EconWPA.
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