ABSTRACT
This chapter provides a critical evaluation of the extensive literature on the economic features of networks. As a result of rapid innovation, network industries such as telecommunications, electric power, city gas, and railway, have played an important role in determining a country’s economic growth. The US and the UK have rapidly furthered regulatory reforms in these industries, whereas the pace of Japan’s reform, which used to be quite slow, has finally overtaken other countries. Network externalities are some of the most important topics in modern industrial economics. As a rule, the negative aspects of network externalities have been overemphasized, though a lot of networking services have voluntarily taken off without special intervention by the government. The incentive to promote interconnection under network externalities depends on the cost to promote interconnection compared to the benefit from interconnection. An interesting topic of network economics is the convergence of industries as a result of innovation and deregulation.
