Network Economies in Indian Telecom

Abstract

Natural monopolies arising out of sub-additivity costs on the supply side are well known. Recently the consumer side has been emphasized especially in industries like telecom and IT/software industries. As per Shapiro and Varian (1999), network industries are characterized by strong super additivity of benefits on the consumption side. In the IT and related industries, Morris (2002) explores the detailed exposition on consumer side economies of scale and scope and its regulatory implications. Demand side economies of scale accrue from increased utility to a potential subscriber from a larger network. Hence, size itself becomes a factor in driving demand and has implications for a firm and its associated industry’s growth prospects. We review the economic literature for demand side economies of scale.