Interconnection-Infrastructure as a Prerequisite for the Developmentof Territories – The Role of Network Externalities

The main aim of Chapter is to determine factors that enhance or temper the’ private incentives of firms to invest in telecommunication technologies. We analyse the impact of the parameters defining the network externality effect - the extent of the network effect and the number of users - on total factor productivity and telecommunications investment. If we look at a given territory, our model predicts that the most favourable condition for a firm to increase its investment in network technologies and obtain the most efficient total factor productivity is : being in a market with low product differentiation, a large number of users, intensive network externality and considerable technological opportunities linked to the telecommunication network. These factors can be interpreted as determinants of territorial growth with respect to network infrastructure. However, there is conflict between private incentives to telecommunications usage and their effects on total welfare.