Measuring Telecommunication System Network Effects

  • Gary Madden
  • Aniruddha Banerjee
  • Grant Coble-Neal
Part of the Contributions to Economics book series (CE)


The idea that adding new subscribers to a telecommunications network increases the value of subscription to individual subscribers, or network effect, has attracted much interest in the network economics literature. (1973), (1974) and (1975) pioneered formal theoretical analyses of the welfare implications of such network effects. In particular, (1973) demonstrated the public good dimension of networks. (1974) extends the analysis to derive a demand function containing telephone price as an argument. However, difficulty in formulating structural demand models that incorporate network effects meant that few empirical studies provide evidence of the magnitude of network effects. However, (1983) estimates the value of the telephone service for different sized local calling areas and density of telephone main stations per square mile. Further, (1990) report evidence of a network effect using arguments similar to (1983). Following (1995), (2002), 2004 and (2004) estimate a network effect based on a structural model consistent with optimizing consumer behavior for individual telecommunications services.


Network Size Marginal Utility Network Effect Mobile Telephone Telecommunication Service 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Artle R, Averous C (1973) The telephone system as a public good: Static and dynamic aspects. Bell Journal of Economics and Management Science 4: 89–100CrossRefGoogle Scholar
  2. Becker GS, Grossman M, Murphy KM (1994) An empirical analysis of cigarette addiction. American Economic Review 84: 396–417Google Scholar
  3. Cecchetti SG, Rich RW (2001) Structural estimates of the US sacrifice ratio. Journal of Business and Economics Statistics 19: 416–27CrossRefGoogle Scholar
  4. Economides N, Himmelberg C (1995) Critical mass and network size with application to the US FAX market. Discussion Paper EC-95-11, Stern School of Business, New York UniversityGoogle Scholar
  5. Greene WH (2002) LIMDEP Version 8.0 Reference Guide. Econometric Software Incorporated, New YorkGoogle Scholar
  6. International Telecommunication Union (2003) World telecommunications indicators database. International Telecommunication Union, GenevaGoogle Scholar
  7. Littlechild SC (1975) Two-part tariffs and consumption externalities. Bell Journal of Economics and Management Science 5: 661–70Google Scholar
  8. Madden G, Coble-Neal G (2002) Internet forecasting and the economics of networks. In Loomis D, Taylor D (eds) Forecasting the Internet: Understanding the data communications revolution. Kluwer Academic Publishers, Boston, pp 105–30Google Scholar
  9. Madden G, Coble-Neal G (2004) Economic determinants of global mobile telephony growth. Information Economics and Policy 16, forthcomingGoogle Scholar
  10. Madden G, Coble-Neal G, Dalzell B (2004) A dynamic model of mobile telephony subscription incorporating a network effect. Telecommunications Policy 28(2): 135–44CrossRefGoogle Scholar
  11. Nelson CR, Startz R (1990) The distribution of the instrumental variables estimator and its t-ratio when the instrument is a poor one. Journal of Business 61: S125–40Google Scholar
  12. OECD (1997, 1999, 2001, 2003) Communication outlook. OECD, ParisGoogle Scholar
  13. Perl LJ (1983) Residential demand for telephone service 1983. Prepared for Central Service Organization of the Bell Operating Companies, Inc., White Plains NYGoogle Scholar
  14. Pesaran MH, Shin Y (1998) Generalized impulse response analysis in linear multivariate models. Economics Letters 58: 17–29CrossRefGoogle Scholar
  15. Rohlfs J (1974) A theory of interdependent demand for a communications service. Bell Journal of Economics and Management Science 5: 16–37CrossRefGoogle Scholar
  16. Taylor LD, Kridel DJ (1990) Residential demand for access to the telephone network. In de Fontenay A, Shugard MH, Sibley DS (eds) Telecommunications demand modeling. North-Holland, AmsterdamGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2004

Authors and Affiliations

  • Gary Madden
    • 1
  • Aniruddha Banerjee
    • 2
  • Grant Coble-Neal
    • 3
  1. 1.NERA Economic ConsultingCambridgeUSA
  2. 2.Communication Economics and Electronic Markets Research CentreCurtin University of TechnologyPerthAustralia
  3. 3.Communication Economics and Electronic Markets Research CentreCurtin University of TechnologyPerthAustralia

Personalised recommendations