TELECOMMUNICATION EXTERNAL ECONOMIES, CITY SIZE AND OPTIMAL PRICING FOR TELECOMMUNICATIONS*

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Abstract
In this paper I make use of a city systems model to examine how telecommunications may affect cities in urban systems. The model offers an explanation for the observation that the share of employment in the communication‐intensive producer‐service sector increases with city size in the U.S. I suggest that external scale economies associated with metropolitan employment size, telecommunication network size and total number of intrametropolitan telecommunication contacts are possible explanations for this observation. I go on to suggest that the presence of telecommunication size and contact level external scale economies at the metropolitan level affects the optimal price that should be charged for local telecommunication services.

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