Network externalities and two-part tariffs in telecommunication markets

This article analyzes demand side particularities of telecommunications markets and their consequences for the market structure. I assume that telecommunications markets are characterized by two distinguishing features: (i) the efficacy of network externalities and (ii) the presence of two-part tariffs as a simple instrument of price discrimination. Then, the usual tendency to conformity established by network externalities may in some sense be overcome by sufficient differentiation in price structures. In contrast to the perception that deregulated telecommunication markets exhibit a genuinely higher degree of competition, this article points to the observation that discrimination may retain monopoly power to network suppliers by introducing more product differentiation. Various regulation patterns and pricing rules are analyzed with respect to their influence on competition and market structure.  2002 Elsevier Science B.V. All rights reserved.