Advanced Search
MyIDEAS: Login to save this article or follow this journal

Pricing Patterns of Cellular Phones and Phonecalls: A Segment-Level Analysis


Author Info

  • Dipak C. Jain

    (J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60208-2001)

  • Eitan Muller

    (Recanati Graduate School of Business, Tel Aviv University, Ramat-Aviv, Tel Aviv 69978, Israel)

  • Naufel J. Vilcassim

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089-1421)

Registered author(s):


    One expectation of the U.S. Federal Communications Commission (FCC) in the early stages of the cellular communications industry was that the presence of two licensees in each market would ensure competition, and thereby result in declining prices over time for both cellular phones (handsets) and phonecalls. However, industry observers have noted recently that although the price of handsets has declined over time, the price of the phonecalls has not. We investigate this interesting pricing issue by modeling the market interaction between the providers of cellular services and also their interaction with customers using a game theoretic framework. A critical assumption in the development of our model is that there exist segments of customers with different valuations, usage levels, and price sensitivities for cellular service. Empirically, we provide support for the existence of two customer segments (viz., Business/Professional and Personal) from both secondary data on industry usage and revenue, and primary data collected from a conjoint analysis study of cellular service customers. From the latter source, we also establish that the Business/Professional customers are more sensitive to prices of phonecalls than the Personal segment. From our analytical model, we characterize the conditions under which penetration and skimming pricing strategies for the handsets are profit-maximizing from the sellers' standpoint, and derive the corresponding price of phonecalls. One of our main analytical results is that a competitive structure can result in lower prices over time for the handset, but higher prices for the phonecalls, depending on production costs of the handset. We are thus able to provide a theoretical explanation for the observed price patterns for the handset and phonecalls.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL:
    Download Restriction: no

    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 45 (1999)
    Issue (Month): 2 (February)
    Pages: 131-141

    as in new window
    Handle: RePEc:inm:ormnsc:v:45:y:1999:i:2:p:131-141

    Contact details of provider:
    Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Web page:
    More information through EDIRC

    Related research

    Keywords: cellular communications; dynamic pricing; customer segmentation; repeated games;


    No references listed on IDEAS
    You can help add them by filling out this form.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Vogelsang, Ingo, 2010. "The relationship between mobile and fixed-line communications: A survey," Information Economics and Policy, Elsevier, vol. 22(1), pages 4-17, March.
    2. Peters, Kay & Albers, Sönke & Kumar, V., 2008. "Is there more to international Diffusion than Culture? An investigation on the Role of Marketing and Industry Variables," EconStor Preprints 27678, ZBW - German National Library of Economics.
    3. Mesak, Hani I. & Bari, Abdullahel & Babin, Barry J. & Birou, Laura M. & Jurkus, Anthony, 2011. "Optimum advertising policy over time for subscriber service innovations in the presence of service cost learning and customers' disadoption," European Journal of Operational Research, Elsevier, vol. 211(3), pages 642-649, June.
    4. Hongjai Rhee & Sangkyu Rhee, 2009. "An Analysis Of Equilibrium Relationship Between Price Elasticity And Expenditure Level: A Case Study Of Korean Mobile Market Data," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 69-83, December.
    5. Kim, Young Joo & Hwang, Hark, 2009. "Incremental discount policy of cell-phone carrier with connection success rate constraint," European Journal of Operational Research, Elsevier, vol. 196(2), pages 682-687, July.
    6. Amit Mehra & Gireesh Shrimali, 2008. "Introduction of Software Products and Services Through "Public" Beta Launches," Working Papers 08-11, NET Institute.


    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


    Access and download statistics


    When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:45:y:1999:i:2:p:131-141. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.