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The effect of prices on fixed and mobile telephone penetration: Using price subsidies as natural experiments

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  • Ward, Michael R.
  • Woroch, Glenn A.

Abstract

A natural experiment, unintentionally conducted by the price subsidy program Lifeline Assistance, underpins our innovative strategy to estimate consumer demand for communications services. Using a national household panel containing demographic and billing information, we estimate own and cross-elasticities of demand for fixed and mobile services and find moderate substitution between the two. We control for the role of income effects by showing the subsidy has little effect on consumption of similar products and services. To account for potential bias due to endogeneity of program participation, a difference-in-differences analysis of re-sampled households results in estimates similar to the cross-sectional analysis. An asymmetry in the response to Lifeline participation arose depending on whether a household added or dropped Lifeline between samplings. We use the estimated demand parameters to simulate the impact of making the Lifeline program universal, or eliminating it altogether. In either case we find the net impact on combined fixed and mobile penetration is small.

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  • Ward, Michael R. & Woroch, Glenn A., 2010. "The effect of prices on fixed and mobile telephone penetration: Using price subsidies as natural experiments," Information Economics and Policy, Elsevier, vol. 22(1), pages 18-32, March.
    • Handle: RePEc:eee:iepoli:v:22:y:2010:i:1:p:18-32
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    References listed on IDEAS

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    Cited by:

    1. Barth, Anne-Kathrin & Heimeshoff, Ulrich, 2012. "How large is the magnitude of fixed-mobile call substitution? Empirical evidence from 16 European countries," DICE Discussion Papers 49, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    2. Jinsoo Bae & Yun Jeong Choi & Jong-Hee Hahn, 2014. "Fixed and mobile broadband; Are they substitutes or complements?," Working papers 2014rwp-68, Yonsei University, Yonsei Economics Research Institute.
    3. Kummer, Michael & Schulte, Patrick, 2014. "Money and privacy: Android market evidence," ZEW Discussion Papers 14-131, ZEW - Leibniz Centre for European Economic Research.
    4. Lange, Mirjam R.J. & Saric, Amela, 2016. "Substitution between fixed, mobile, and voice over IP telephony – Evidence from the European Union," Telecommunications Policy, Elsevier, vol. 40(10), pages 1007-1019.
    5. Lukasz Grzybowski & Frank Verboven, 2013. "Substitution and Complementarity between Fixed-line and Mobile Access," Working Papers 13-09, NET Institute.
    6. Jeffrey T. Macher & John W. Mayo & Olga Ukhaneva & Glenn A. Woroch, 2017. "From universal service to universal connectivity," Journal of Regulatory Economics, Springer, vol. 52(1), pages 77-104, August.
    7. Ezzat Riham Ahmed, 2017. "Fixed-Mobile Substitution in MENA Countries: The Future of Fixed-Line Markets," Review of Network Economics, De Gruyter, vol. 16(4), pages 387-417, December.
    8. Aron Debra J. & Ingraham Allan T., 2012. "The Effects of Legacy Pricing Regulation on Adoption of Broadband Service in the United States," Review of Network Economics, De Gruyter, vol. 11(4), pages 1-38, December.
    9. Barth, Anne-Kathrin & Heimeshoff, Ulrich, 2011. "Does the growth of mobile markets cause the demise of fixed networks? Evidence from the European Union," 22nd European Regional ITS Conference, Budapest 2011: Innovative ICT Applications - Emerging Regulatory, Economic and Policy Issues 52144, International Telecommunications Society (ITS).
    10. Mirjam R. J. Lange, 2017. "Tariff diversity and competition policy: drivers for broadband adoption in the European Union," Journal of Regulatory Economics, Springer, vol. 52(3), pages 285-312, December.
    11. Hoernig, Steffen & Bourreau, Marc & Cambini, Carlo, 2015. "Fixed-mobile substitution and termination rates," Telecommunications Policy, Elsevier, vol. 39(1), pages 65-76.
    12. Thomas S. Conkling, 2018. "Crowd‐Out or Affordability? The Lifeline Expansion's Effect on Wireless Service Spending," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 37(2), pages 357-383, March.
    13. Suárez, David & García-Mariñoso, Begoña, 2013. "Which are the drivers of fixed to mobile telephone access substitution? An empirical study of the Spanish residential market," Telecommunications Policy, Elsevier, vol. 37(4), pages 282-291.
    14. Lange, Mirjam R. J. & Šaric, Amela, 2014. "Deregulating fixed voice services? Empirical evidence from the European Union," 20th ITS Biennial Conference, Rio de Janeiro 2014: The Net and the Internet - Emerging Markets and Policies 106864, International Telecommunications Society (ITS).
    15. Balmer, Roberto E., 2014. "Competition and market strategies in the Swiss fixed telephony market," 20th ITS Biennial Conference, Rio de Janeiro 2014: The Net and the Internet - Emerging Markets and Policies 106837, International Telecommunications Society (ITS).
    16. Glenn A. Woroch, 2020. "Spectrum Concentration and Performance of the U.S. Wireless Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(1), pages 73-105, February.
    17. Lukasz Grzybowski & Frank Verboven, 2016. "Substitution between fixed-line and mobile access: the role of complementarities," Journal of Regulatory Economics, Springer, vol. 49(2), pages 113-151, April.
    18. Jiao Xu & Chris Forman & Yu Jeffrey Hu, 2019. "Battle of the Internet Channels: How Do Mobile and Fixed-Line Quality Drive Internet Use?," Service Science, INFORMS, vol. 30(1), pages 65-80, March.
    19. Rudra P. Pradhan & Mak B. Arvin & John H. Hall & Sara E. Bennett, 2018. "Mobile telephony, economic growth, financial development, foreign direct investment, and imports of ICT goods: the case of the G-20 countries," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 45(2), pages 279-310, June.
    20. Balmer, Roberto, 2013. "Competition and Market Strategies in the Swiss Fixed Telephony Market. An estimation of Swisscom’s dynamic residual demand curve," MPRA Paper 54078, University Library of Munich, Germany.
    21. Thomas S. Conkling, 2020. "Compliance and competition with heterogeneous service providers: the federal Lifeline program," Journal of Regulatory Economics, Springer, vol. 57(1), pages 74-104, February.
    22. Wolfgang Briglauer & Anton Schwarz & Christine Zulehner, 2011. "Is fixed-mobile substitution strong enough to de-regulate fixed voice telephony? Evidence from the Austrian markets," Journal of Regulatory Economics, Springer, vol. 39(1), pages 50-67, February.
    23. Balmer, Roberto E., 2015. "Competition and market strategies in the Swiss fixed telephony market," 26th European Regional ITS Conference, Madrid 2015 127123, International Telecommunications Society (ITS).
    24. Ward, Michael R. & Zheng, Shilin, 2012. "Mobile and fixed substitution for telephone service in China," Telecommunications Policy, Elsevier, vol. 36(4), pages 301-310.
    25. Nakamura, Akihiro, 2013. "Retaining telecommunication services when universal service is defined by functionality: Japanese consumers' willingness-to-pay," Telecommunications Policy, Elsevier, vol. 37(8), pages 662-672.

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