Critical Mass and Tariff Structure in Electronic Communications Markets
Volume: Volume 12, No. 2
Issue: Autumn 1981
Pages: pp. 467-487
Authors: Shmuel S. Oren and Stephen A. Smith
Title: Critical Mass and Tariff Structure in Electronic Communications Markets
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.
JEL Classification
Microeconomics Theory of Firm and Industry under Imperfectly Competitive Market Structures (0226)
Industry Studies Electrical, Gas, Communication, and Information Services (6352)