Empirical Analysis of Mobile Voice and SMS Service: A Structural Model

32 Pages Posted: 18 Jan 2008 Last revised: 30 Jun 2009

See all articles by Youngsoo Kim

Youngsoo Kim

Singapore Management University - School of Informaiton Systems

Rahul Telang

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

William B. Vogt

RAND Corporation; National Bureau of Economic Research (NBER)

Ramayya Krishnan

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Date Written: April 1, 2009

Abstract

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

Suggested Citation

Kim, Youngsoo and Telang, Rahul and Vogt, William B. and Krishnan, Ramayya, Empirical Analysis of Mobile Voice and SMS Service: A Structural Model (April 1, 2009). Available at SSRN: https://ssrn.com/abstract=1085285 or http://dx.doi.org/10.2139/ssrn.1085285

Youngsoo Kim (Contact Author)

Singapore Management University - School of Informaiton Systems ( email )

80 Stamford Road
Singapore, 178902
Singapore

Rahul Telang

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

4800 Forbes Ave
Pittsburgh, PA 15213-3890
United States
412-268-1155 (Phone)

William B. Vogt

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ramayya Krishnan

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

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