rally, the market equi- librium will differ from the social optimum. Thus, the market will choose different levels of total network capacity, because the optimal total capacity will differ from the capacity provided by the market with monopolistic competition. Thus, D(p*, m*) will differ from D(pc, mc). The divergence of market capacity from (second-best) optimal capacity need not suggest that networks should be regulated. There is no general tendency for markets to provide either too much or too little capacity. When economies of scale are limited, product variety is higher for both the optimal benchmark and the mar- ket outcome. As the cost of establishing a network falls, price approaches unit costs in either case and product variety increases. Markets may provide insufficient prod- uct variety in this case, but this does not matter that much because the benchmark is relatively high optimal product variety. Conversely, with significant economies of scale, product variety is lower for both the optimal benchmark and the market outcome. As the cost of establishing a network rises, the price is marked up above unit cost in either case and product variety declines. Markets may provide excessive product variety in this case, but this is relative to the benchmark of relatively low optimal product variety. Different market structures and competitive behaviors will yield different capacity levels. Moreover, when networks interconnect, their interaction and transfer payments will also affect the amount of capacity provided at the market equilibrium. Cooperative agreements may serve to eliminate potential inefficiencies in the market provision of capacity, as Mathewson and Winter (1997) point out. The market provision of network capacity thus reflects the demand for product variety, economies of scale of individual networks, and cooperative interconnection agreements. Access regulations are likely to have significant effects on market equi- librium capacity and on the number of networks. Suppose that mandated access incr