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 


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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

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