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.
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Barnett, A.H., Kaserman, D.L. The Simple Welfare Economics of Network Externalities and the Uneasy Case for Subscribership Subsidies. Journal of Regulatory Economics 13, 245–254 (1998). https://doi.org/10.1023/A:1008029120462
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DOI: https://doi.org/10.1023/A:1008029120462