 (Spulber 2002a). Moreover, most of these features, which are not unique to network industries, are easily taken into account by traditional price mechanisms. Because these network features do not serve to deter entry, potential competition by new entrants will discipline established firms and is likely to lead to competitive pricing and innovation. Even if entry barriers exist, multiple incumbents may compete with each other, leading to competitive prices. 1. Economies of Scale and Scope As we explained in Chapters 2 and 4, economies of scale and scope exist in networks. Economies of scale exist for a single-product firm if unit costs decline as a function of output. 10 For a multiple-product firm, economies of scale mean that total produc- tion costs exceed the total of each output multiplied by its marginal cost. Networks certainly exhibit economies of scale. Large-scale networks can employ advanced high-capacity switches. Moreover, a firm building and operating a large network benefits from economies of scale because it can spread the overhead costs associ- ated with construction and maintenance over a larger set of activities. Economies of scale may also be present because of volume-surface relationships, SO that the volume of a conduit can be expanded with a less-than-proportional increase in the surface. Moreover, the unit costs of capacity in a transmission line decline because the necessary cost of constructing the conduit remains fixed regardless of the num- ber of transmission wires placed inside the conduit. Therefore, telecom companies find that the incremental cost of installing additional fiber capacity during initial installation is less than the actual unit cost of installing fiber capacity. Economies of scope exist if a company achieves cost economies by producing goods in combination rather than separately. Because networks can use common facilities to provide multiple services, networks also contain economies of scope. For example, the same switch can provide multiple services such as call wai