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The size of the critical mass as a function of the strength of network externalities: a mobile telephone estimation

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  • A. Laura Baraldi

Abstract

The amount of financial incentives required to stimulate network growth depends on the size of the critical mass which, in its turn, depends on the intensity with which network externalities play their role in the diffusion process. The measurement of the strength of network effects and all that can enforce or depress them is fundamental for forecasting the diffusion of new goods. Looking at the mobile telephone network for the OECD countries surveyed between 1989 and 2006, we propose a new methodology which allows us to estimate the size of the critical mass through the estimation of the parameters which determines the concavity degree of the inverse demand curve for mobiles. We found that socio-demographic variables, as well as variables which proxy the efficiency of fixed-line operators or the availability and cost of alternative services, affect the strength of network effects and, therefore, the critical mass size.

Suggested Citation

  • A. Laura Baraldi, 2012. "The size of the critical mass as a function of the strength of network externalities: a mobile telephone estimation," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(4), pages 373-396, June.
  • Handle: RePEc:taf:ecinnt:v:21:y:2012:i:4:p:373-396
    DOI: 10.1080/10438599.2011.595920
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    References listed on IDEAS

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    1. Michal Grajek & Tobias Kretschmer, 2008. "Estimating critical mass in the global cellular telephony market," ESMT Research Working Papers ESMT-08-004 (R1), ESMT European School of Management and Technology, revised 15 Apr 2010.
    2. Nicholas Economides & Charles Himmelberg, 1995. "Critical Mass and Network Size with Application to the US Fax Market," Working Papers 95-11, New York University, Leonard N. Stern School of Business, Department of Economics.
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    Cited by:

    1. Lechman, Ewa, 2014. "The ‘technological take-off’ and the 'critical mass'. A trial conceptualization," MPRA Paper 59506, University Library of Munich, Germany.
    2. Leo Van Hove, 2016. "Measuring the value of mobile telecommunications networks," Netnomics, Springer, vol. 17(3), pages 191-222, November.
    3. Ewa Lechman, 2013. "ICTs diffusion trajectories and economic development – an empirical evidence for 46 developing countries," GUT FME Working Paper Series A 18, Faculty of Management and Economics, Gdansk University of Technology.
    4. Tsuyoshi Toshimitsu, 2017. "On consumer expectations in a network goods market: The monopoly case," Economics Bulletin, AccessEcon, vol. 37(1), pages 488-493.

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