Network externality measurement in telecommunications service

Abstract

The fundamental difference between telecommunications service and other goods and services is that the former is provided based on networks. Thus, the subscribers are always connected to the network, and they can access the service whenever they need it. Therefore, the service utility of existing subscriber in-creases proportionately with the increase in the number of subscriber accessing the network given that the network has an enough capacity to provide the service. In this paper, we created a theoretical estimation model to measure and schematize the actual amount of network externality in monopolistic market which was inspired by the unique characteristic of the network externality where the consumer surplus grows despite the price increase, a fact that differentiates itself from the conventional demand theory. The analysis result through our model discovered that when the number of potential customer increases, the increment of network externality is always twice as greater than that of consumer surplus.