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The Simple Welfare Economics of Network Externalities and the Uneasy Case for Subscribership Subsidies

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  • Barnett, A H
  • Kaserman, David L

Abstract

The goal of universal service has dominated the telecommunications policy landscape for at least the past half century. This policy objective has been promoted with cross subsidies from long-distance telecommunications services to subscribers to local telecommunications service. The economic rationale for these cross subsidies is network externalities. In this paper, we show that: (1) the presence of network externalities, even if substantial in overall magnitude, does not generally justify a subscribership subsidy, even a well-designed one; and (2) the empirical realities of telecommunications markets make it unlikely that subscribership subsidies of any kind will increase social welfare. Copyright 1998 by Kluwer Academic Publishers

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  • Barnett, A H & Kaserman, David L, 1998. "The Simple Welfare Economics of Network Externalities and the Uneasy Case for Subscribership Subsidies," Journal of Regulatory Economics, Springer, vol. 13(3), pages 245-254, May.
    • Handle: RePEc:kap:regeco:v:13:y:1998:i:3:p:245-54
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    Cited by:

    1. Aloys Prinz, 2001. "Standardising Electronic Means of Payment?," Netnomics, Springer, vol. 3(2), pages 87-101, September.
    2. John Mayo & Scott Wallsten, 2011. "From Network Externalities to Broadband Growth Externalities: a Bridge not yet Built," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(2), pages 173-190, March.
    3. Vogelsang Ingo, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, De Gruyter, vol. 64(3), pages 193-270, December.
    4. Cunningham, Brendan M. & Alexander, Peter J. & Candeub, Adam, 2010. "Network growth: Theory and evidence from the mobile telephone industry," Information Economics and Policy, Elsevier, vol. 22(1), pages 91-102, March.
    5. Eriksson, Ross C & Kaserman, David L & Mayo, John W, 1998. "Targeted and Untargeted Subsidy Schemes: Evidence from Postdivestiture Efforts to Promote Universal Telephone Service," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 477-502, October.
    6. Kidokoro, Yukihiro, 2007. "A model of Internet access when Internet connection speed is upgradable," Information Economics and Policy, Elsevier, vol. 19(1), pages 80-94, March.

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