Forward-Looking Behavior in Mobile Data Consumption and Targeted Promotion Design: A Dynamic Structural Model

44 Pages Posted: 20 Dec 2014 Last revised: 14 Jun 2017

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

We study how individual smartphone users dynamically use mobile data every day facing limited monthly data plans. Employing a unique data set on users' daily data usage from a leading mobile carrier in China, we develop a dynamic structural model in which an individual user maximizes her data usage utility considering the intertemporal trade-off between current and future consumption. We derive theoretical properties of the model to uncover users' dynamic usage patterns. Based on these theoretical results, we construct an empirical test to identify forward-looking users and control for possible consumer myopia. Our model with individual-specific parameters fully captures the significant heterogeneity among mobile data users. We estimate the structural parameters for forward-looking users individually in a computationally efficient manner. Simulated usage data using the model estimates well capture the dynamic trends observed in the actual data. Our counterfactual simulations show how to design profitable promotion strategies targeting forward-looking users in contrast to unprofitable blanket promotions applied to all consumers.

Keywords: mobile data; dynamic usage pattern; forward-looking behavior; individual heterogeneity; targeted promotion; price sensitivity; dynamic structural model

Suggested Citation

Xu, Lizhen and Duan, Jason A. and Hu, Yu Jeffrey and Cheng, Yuan and Zhu, Yan, Forward-Looking Behavior in Mobile Data Consumption and Targeted Promotion Design: A Dynamic Structural Model (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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