eases total demand from D°(p, m) to D(p, m) + A, as in Figure 3.19. The market equilibrium can be restored in several ways. First, market prices would need to rise to ration consumer demand for capacity. Second, capacity would need to expand to meet the additional access demand if prices were not adjusted. Third, demand For a derivation of this condition, see Spulber (1989). Koenker and Perry (1981) show that with a high elasticity of substitution and low scale economies, markets do not provide sufficient product diversity and vice versa. The literature provides a variety of results on the provision of differentiated products. The over- or underprovision of product variety is highly sensitive to the form of consumer preferences (Lancaster 1975; Spence 1976; Dixit and Stiglitz 1977; Salop 1979). Networks in Telecommunications D(p, m) + A D0 (p,m) Figure 3.19. Mandated access increases total demand for network capacity. could be reduced by decreasing product variety m. This would require consolida- tion of networks and would potentially generate economies of scale as usage of each network increased. Consumers would be made worse off by the reduction in product variety. Thus, accommodating the additional access to capacity requires some combination of higher prices, capacity investment, and diminished product variety. If access were not mandated but instead were met with a market response, the result could be a combination of somewhat higher prices combined with greater product variety as additional networks entered to provide capacity. Alternatively, the market might respond by maintaining the existing level of product variety, with each network expanding to provide more capacity. Thus, consumers would not experience diminished product variety, and there might be lower prices as expanded access generated benefits from economies of scale. 2. Complements and Network Capacity Demand for network capacity depends on complementary services. Consumer demand for cable television depends on what types of programs are availa