Monopoly provision of a network 4 The rohlfs model makes clear many of the potential problems that can arise in markets with network effects 1. The market may fail altogether Suppose the firm must set a fee over $30 perhaps to cover fixed costs Network will fail even though it is socially efficient When half the market is served, the customers hooking up have vi 's that range from $50 to $100 or fv, values that range from $25 to $50 Average value is then $37.50, well above S30 But as p rises to $30, f falls and so does average willingness to pay There is no price at which sufficient numbers of consumers sign on that yields an average willingness to pay of $306 Monopoly Provision of a Network 4 • The Rohlfs model makes clear many of the potential problems that can arise in markets with network effects • 1. The market may fail altogether – Suppose the firm must set a fee over $30 perhaps to cover fixed costs – Network will fail even though it is socially efficient • When half the market is served, the customers hooking up have vi ‘s that range from $50 to $100 or fvi values that range from $25 to $50 • Average value is then $37.50, well above $30 • But as p rises to $30, f falls and so does average willingness to pay • There is no price at which sufficient numbers of consumers sign on that yields an average willingness to pay of $30