lub members is large relative to the number of nonmembers, club members can make side payments to nonmembers to induce them not to destabilize the existing coalitions. The resulting utilities lie fairly close to core utilities. See, e.g., Wooders (1980). Another limiting factor is that the classic analysis of club goods assumes that consumer preferences are homogeneous. See, e.g., Buchanan (1965). If preferences are heterogeneous, each homogeneous subset of the population should partition itself into homogeneous clubs (Pauly 1970; McGuire 1974; Berglas and Pines 1981). If integer problems prevent the total population from segregating itself into homogeneous clubs, individuals with different preferences may have to form a mixed club. The resulting intraclub heterogeneity can lead to suboptimal provision (Berglas and Pines 1981). Later work has shown that mixed clubs may be optimal SO long as crowding is anonymous and members' demands for facility size and congestion coincide at a feasible division of total economy-wide endowments (Scotchmer and Wooders 1987). It is worth noting that the analyses that found flat-rate pricing preferable to usage-sensitive pricing assumed perfect information (Helsley and Strange 1991). When information is imperfect, the presence of transaction costs can lead to an adverse selection problem in which high demanders patronize facilities designed for low demanders. In such cases, no equilibrium may exist, and any equilibrium that does exist is inefficient (Lee 1991). In addition, existing analyses take capacity as given. Although per capita usage will be higher under flat-rate pricing, models that take capacity as endogenous also point out that capacity will be higher as well. As a result, the net impact on congestion is ultimately ambiguous and depends on which of these effects dominates. The problem becomes even more complex if one acknowledges that flat-rate pricing can cause the number of users to change as well. If The Regulation of Broadband Networks and the Internet As discussed i