LIBERALIZATION IN SERVICE NETWORKS: Simple Network Service Model 4

Communications connectivity
In this case it is thus simple to construct parameterizations in which both countries will receive benefits from network related service liberalization of equal absolute size, even if one country is smaller or larger than the other and has more or less households. The widely accepted propositions about trade in goods, the division of gains and country relative size thus seem not to apply to this case in the same way.

The Gains from Liberalization in a Two Service Model

While illustrating a case where the gains from network related service trade liberalization between countries can be of equal absolute size, the discussion in the previous section nonetheless embodies some strongly simplifying model features. Liberalization is simply treated as a connection of two separate country networks, and so unchanged relative services to goods prices in each country characterize a liberalization scenario. Also, because the network externality effect is multiplicative in utility, no real effects accompany liberalization; consumption and production of network related services remains unchanged in the new integrated network equilibrium, while household utility changes due to expanded network size.

One can modify these assumptions by extending the above framework and seeing if similar results can be obtained, but numerical simulation is needed to investigate its properties since model solutions are no longer analytic. To do this, we separately consider two different types of services; those relating to domestic and to internationally transmitted services (message communications). In the process, we give governments the power to tax these two types of services when purchased in their own country. A higher tax rate on international rather than on domestic communications can be thought of as reflecting regulation of internationally linked network service transactions.