Regional variations in production network externalities

In the present paper the main area of analysis is the concept of network externalities and its interpretation from a theoretical, conceptual and empirical point of view. A conceptual framework is built on the proposition that network externalities are one of the decisive reasons for entering a telecommunication network. Since externality mechanisms arise at the user side and impact on the demand function, they can be labelled 'consumption network externalities'. However, this paper goes a step further than the recent Literature by claiming that telecommunication networks are not only governed by consumption network externalities, but also generate production network externalities, since their advantages may be measured in terms of the performance of firms and regions. The paper presents a conceptual model on the role network externality plays on the performance of firms and regions, a methodology to measure these externalities at an empirical level and the results of the empirical analysis developed in Italy. Strong regional variations in the way network externalities are exploited emerge from the empirical analysis.