Empirical Analysis of Mobile Voice and SMS Service: A Structural Model
32 Pages Posted: 18 Jan 2008 Last revised: 30 Jun 2009
Date Written: April 1, 2009
In addition to the wireless telephony boom, a similar exponential increasing trend in wireless data service - short message service (SMS) - is visible as technology advances. We develop a structural model to understand how mobile users behave, especially how they consume voice, and services. Specifically, we measure the own- and the cross-price elasticities of these services. The cross-price elasticity is of significant importance because marketing activities are critically influenced by whether the goods are substitutes or complements. The research context poses significant econometric challenges due to three-part tariff, sequential discrete plan choice and continuous quantity choices. Using detailed individual consumption data, we find that SMS and voice services are small substitutes. 10% increase in the price of voice minutes will induce about 0.8% increase in the demand for SMS. Younger users' demand is far more inelastic than that of older users. Finally, we discuss practical implications, conducting policy experiments that capture the effects of change in the strategic pricing scheme on firm revenues.
Keywords: Mobile Demand, A Discrete/Continuous Choice Model, Structural Model, Wireless Communication, substitutes, elasticity
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