LIBERALIZATION IN SERVICE NETWORKS: The size of the gains 5

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Sensitivity Analysis of Regional Welfare Results for international telecom service liberalization (Welfare effects of Hicksian EV as percentage of GDP)
We have performed some limited sensitivity analysis using this model to explore ranges of welfare estimates by region as we vary production side elasticities (the model demand side is Cobb-Douglas). Results are reported in Table 7, and the money metric welfare effects by region are little affected as elasticities of transformation change.

Conclusion

In this paper we explore the implications of international liberalization of network related services, such as telecoms. We argue that in the presence of network externalities, larger per capita benefits accrue to residents of smaller countries on expanding international networks, which roughly offsets differences in numbers of residents (country size). Unlike for trade in goods, gains from liberalization can be of approximately equal absolute size across small and large countries.

We first show this for a simple case , and explore this further numerically for more complex structures, including for an empirical model implementation to global telcoms liberalization for the US, Europe, Canada and the rest of the world.

This theme that the division of gains does not relate to country size in the sameways as for the case of liberalization of goods trade prevails across all model calculations. We also show larger gains from liberalization relative to a Nash equilibrium in a network related service model than in a comparable goods model.