Search results

A simple IS‐LM model under imperfect competition and increasing returns is examined. It is shown that when firms maximize profits the values of the fiscal and monetary policy multipliers are smaller than their respective ones under perfect competition. If firms follow a cost‐plus pricing rule, then the values of the multipliers increase but they are still less than their corresponding ones under perfect competition. In both cases the values of the multipliers approach those in the standard IS‐LM model as the mark‐up factor tends to infinity.

Network externalities are analysed in the telecommunications sector and the public good character of the network is stressed. It is examined whether the presence of network externalities justifies a subscribership subsidy usually reflected in a low connection charge. The answer is, in general, positive unless network externalities are infra‐marginal, a case that exists at high penetration rates. In this case the argument for the achievement of universal service by invoking the presence of network externalities fails. This argument becomes even weaker as the expansion of the network through the provision of new goods and services creates externalities that affect all subscribers equally.