An Econometric Analysis of the Demand for Fixed-Mobile Telephone Services

Abstract:     
In this paper, we estimate the demand for various fixed and mobile telephone services using monthly time series data. We begin by discussing three different ways of classifying the demand for those services, which are (1) local, toll, LM, M-originating calls, (2) LL, LM, M-originating calls, and (3) L-originating calls, M-originating calls. Then we note that price indices appearing in the demand equations are endogenous, and estimate multiple demand equations of each classification simultaneously using multiple-equation GMM (generalized method of moments). We show that the own price elasticities of the demand for fixed call originating or terminating services range between -1.06 and -2.56, while those elasticities of mobile call originating services range between -0.52 and -1.15. We also show that the cross price elasticities between fixed and mobile phones are positive and range between 0.5 and 2. This result is consistent with the hypothesis of fixed-mobile substitution.

Keywords: fixed and mobile telephone demand, own price elasticity, cross price elasticity, simultaneous equations system, GMM

Accepted Paper Series