 length one, with the seller located at point zero and the buyer located at point 1. The cost to the network of providing the necessary transmission, transportation, or delivery service to the buyer and seller is T. Suppose that the buyer and the seller have no suitable alternative business partners, and that there are no alternative networks to provide a means of connecting the buyer and the seller. Then the network service makes it possible for the buyer and the seller to achieve gains from trade V - Cat a cost of network service T. The cost of the network service is thus a transaction cost and the net benefit from the transaction is thus V - C - T. The network service is not the transaction itself but only the mechanism of exchange. Suppose that the buyer has an alternative transaction that yields a net benefit V, which is less than V. Suppose also that the seller has an alternative transaction that yields the seller a benefit of Co. Then Vo and Co are the respective opportunity costs of the buyer and the seller. The buyer and the seller have no alternative network service to transact with each other. Accordingly, the buyer and the seller will use the network service if and only if V - C-T>Vo+Co. The net benefit generated by the network is then V - C - Vo - Co T. The network service must permit a transaction that is better than the alternatives for both the buyer and the seller. Now suppose that there are two competing networks that have respective costs T1 and T2, with T1 < T2. Then, regardless of whether the buyer and seller have any alternatives, the second network does not offer a service of any value. The value of the service offered by the first network is simply the lower cost relative to the second network. If it used by the buyer and the seller, the net benefit generated by the first network is thus at most T2 - T1. To see why this is so, note that without the first network, the buyer and the seller would use the second network if and only if V - C - Vo - Co > T2. Thus, the incremental value of the fi