Government policy, network externalities and mobile telecommunication services: evidence from OECD countries

Abstract

This article analyses the effect of government policy on the diffusion of mobile telecommunication services in member countries of the Organization for Economic Cooperation and Development (OECD). Specifically, we examine how the competition in and standard policies of each country affect cellular diffusion through interactions with positive and negative network externalities. The empirical analysis shows that significant network externality effects exist in a cellular market. Although the positive effects dominate the negative effects initially, the negative network externality effects become larger and outweigh the positive externality effects after a certain level of diffusion rate has been achieved. In particular, a single standard policy and the speed of technological innovation combined with the previous penetration rate generate a positive network externality on the diffusion of mobile telecommunications. However, a competition policy that solely increases the rate of new subscriptions does not generate any interacting effects.