Network Effects in Infrastructure Regulation: Principles and Paradoxes

Abstract

Among the many crucial issues in infrastructure regulation has been how to handle network effects. These can both cause monopoly and complicate the management of partial transitions to competition in telecommunications and electricity. The recent global financial crisis itself reflects network effects. Reviewing the variety of definitions, manifestations, and policy consequences of network effects, in sectors both traditionally regulated and outside such regulation, can promote understanding of when networks should be regulated, what about them should be regulated, who should do the regulating – and why we should intervene.