Demand in a Portfolio-Choice Environment: The Evolution of Telecommunications
50 Pages Posted: 22 Aug 2012 Last revised: 4 Jul 2019
Date Written: May 28, 2019
The introduction of a new good (or service) often creates situations in which consumers may choose to consume an extant good, the new good, both goods, or neither. Understanding the evolution and determinants of consumer demand in these situations is especially important to marketing practices ranging from advertising to pricing. In this study, we draw upon a database of over 180,000 individual household choices of fixed and/or mobile telephone subscriptions over 2003-2010 to improve insight into both the structure and evolution of consumer demand in such portfolio-choice settings. Congruent with our underlying consumer utility model, we find that cellphone service complements household member mobility: Households that are more often ``on the go'' favor mobile services. We also find that fixed and mobile services are price substitutes, but the degree of substitution decreases over our sample period. Finally, we find both the presence of network effects and that own- and cross-price elasticities of fixed and mobile telephony services demonstrate marked differences among demographic groups and across income levels.
Keywords: telecommunications demand, fixed-mobile substitution
JEL Classification: D12, L96
Suggested Citation: Suggested Citation