A Dynamic Structural Model for Heterogeneous Mobile Data Consumption and Promotion Design

43 Pages Posted: 20 Dec 2014 Last revised: 27 Oct 2015

Lizhen Xu

Georgia Institute of Technology - Scheller College of Business

Jason A. Duan

University of Texas at Austin

Yu Jeffrey Hu

Georgia Institute of Technology - Scheller College of Business

Yuan Cheng

Tsinghua University - School of Economics & Management

Yan Zhu

Tsinghua University - School of Economics & Management

Date Written: December 19, 2014

Abstract

This paper studies how individual users who subscribe to limited monthly mobile data plans dynamically consume data on a daily basis. Employing a unique data set on users' daily mobile data usage from a large mobile carrier, we develop a dynamic structural model in which an individual user maximizes her data usage utility by considering the intertemporal trade-off between current and future consumption. The model contains individual-specific utility parameters to fully capture the heterogeneity in consumption behavior across mobile data users. Theoretical properties derived from the model enable us to discover distinct usage patterns for both forward-looking and myopic users. We then empirically test for forward-looking consumption patterns in order to control for possible consumer myopia. For each of the users with forward-looking consumption patterns, we estimate her structural utility parameters such as price sensitivity. We find simulated individual consumption based on our model estimates can correctly capture the dynamic trends observed in the actual individual consumption. We also conduct counterfactual simulations to investigate how month-end promotions and discounts can stimulate individual mobile data consumption and increase carrier profit.

Keywords: dynamic structural model; mobile data; individual heterogeneity; price sensitivity; forward-looking consumption pattern; myopic consumption pattern; month-end promotion

Suggested Citation

Xu, Lizhen and Duan, Jason A. and Hu, Yu Jeffrey and Cheng, Yuan and Zhu, Yan, A Dynamic Structural Model for Heterogeneous Mobile Data Consumption and Promotion Design (December 19, 2014). Available at SSRN: https://ssrn.com/abstract=2540533 or http://dx.doi.org/10.2139/ssrn.2540533

Lizhen Xu (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

United States
404-894-4380 (Phone)
404-894-6030 (Fax)

Jason A. Duan

University of Texas at Austin ( email )

2110 Speedway
B6700
Austin, TX 78712
United States
5122328323 (Phone)

Yu Jeffrey Hu

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Yuan Cheng

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Yan Zhu

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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