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Critical Mass and Tariff Structure in Electronic Communications Markets

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  • Shmuel S. Oren
  • Stephen A. Smith

Abstract

Most communication services have a demand "externality" in that the benefit to a subscriber depends upon how many of his communication partners also subscribe. This article develops an economic model that determines both the required critical mass size for startup and the ultimate expansion level of such a system. The effects of different pricing structures for the service are evaluated under the assumption that users maximize benefits minus cost and a monopoly supplier maximizes profit.

Suggested Citation

  • Shmuel S. Oren & Stephen A. Smith, 1981. "Critical Mass and Tariff Structure in Electronic Communications Markets," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 467-487, Autumn.
    • Handle: RePEc:rje:bellje:v:12:y:1981:i:autumn:p:467-487
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