IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v56y2010i2p234-252.html
   My bibliography  Save this article

An Empirical Analysis of Mobile Voice Service and SMS: A Structural Model

Author

Listed:
  • Youngsoo Kim

    (School of Information Systems, Singapore Management University, Singapore 178902)

  • Rahul Telang

    (H. J. Heinz III College, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

  • William B. Vogt

    (RAND Corporation, Pittsburgh, Pennsylvania 15213)

  • Ramayya Krishnan

    (H. J. Heinz III College, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Abstract

In addition to the wireless telephony boom, a similar exponentially increasing trend in wireless data service--for example, short message service (SMS)--is visible as technology advances. We develop a structural model to examine user demand for voice service and SMS. Specifically, we measure the own- and cross-price elasticities of these services. The cross-price elasticity is of significant importance because marketing activities are critically influenced by whether the goods are substitutes or complements. The research context poses significant econometric challenges due to three-part tariffs and sequential discrete plan choice and continuous quantity choice decisions. Using detailed individual consumption data of more than 6,000 customers, we find that SMS and voice service are small substitutes. A 10% increase in the price of voice minutes will induce about a 0.8% increase in the demand for SMS. The own-price elasticity of voice is also low, to the order of approximately -0.1. Younger users' demand is far more inelastic than that of older users. We then conduct counterfactual policy experiments that fully capture the effects of changes in key parameters on the firm's revenues. Finally, we discuss the generalizability of our framework.

Suggested Citation

  • Youngsoo Kim & Rahul Telang & William B. Vogt & Ramayya Krishnan, 2010. "An Empirical Analysis of Mobile Voice Service and SMS: A Structural Model," Management Science, INFORMS, vol. 56(2), pages 234-252, February.
    • Handle: RePEc:inm:ormnsc:v:56:y:2010:i:2:p:234-252
    DOI: 10.1287/mnsc.1090.1091
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1090.1091
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.1090.1091?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Nicholas Economides & Katja Seim & V. Brian Viard, 2008. "Quantifying the benefits of entry into local phone service," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 699-730, September.
    2. Hanemann, W Michael, 1984. "Discrete-Continuous Models of Consumer Demand," Econometrica, Econometric Society, vol. 52(3), pages 541-561, May.
    3. P. Seetharaman & Siddhartha Chib & Andrew Ainslie & Peter Boatwright & Tat Chan & Sachin Gupta & Nitin Mehta & Vithala Rao & Andrei Strijnev, 2005. "Models of Multi-Category Choice Behavior," Marketing Letters, Springer, vol. 16(3), pages 239-254, December.
    4. Gruber, Harald, 2001. "Competition and innovation: The diffusion of mobile telecommunications in Central and Eastern Europe," Information Economics and Policy, Elsevier, vol. 13(1), pages 19-34, March.
    5. Grzybowski, Lukasz & Pereira, Pedro, 2008. "The complementarity between calls and messages in mobile telephony," Information Economics and Policy, Elsevier, vol. 20(3), pages 279-287, September.
    6. Eugenio J. Miravete, 2002. "Estimating Demand for Local Telephone Service with Asymmetric Information and Optional Calling Plans," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 943-971.
    7. Gruber, Harald & Verboven, Frank, 2001. "The diffusion of mobile telecommunications services in the European Union," European Economic Review, Elsevier, vol. 45(3), pages 577-588, March.
    8. Nakil Sung & Yong-Hun Lee, 2002. "Substitution between Mobile and Fixed Telephones in Korea," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(4), pages 367-374, June.
    9. Hausman, Jerry, 1999. "Cellular Telephone, New Products, and the CPI," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 188-194, April.
    10. Rakesh Niraj & V. Padmanabhan & P. B. Seetharaman, 2008. "Research Note—A Cross-Category Model of Households' Incidence and Quantity Decisions," Marketing Science, INFORMS, vol. 27(2), pages 225-235, 03-04.
    11. Rodini, Mark & Ward, Michael R. & Woroch, Glenn A., 0. "Going mobile: substitutability between fixed and mobile access," Telecommunications Policy, Elsevier, vol. 27(5-6), pages 457-476, June.
    12. Puneet Manchanda & Asim Ansari & Sunil Gupta, 1999. "The “Shopping Basket”: A Model for Multicategory Purchase Incidence Decisions," Marketing Science, INFORMS, vol. 18(2), pages 95-114.
    13. Ahn, Hyungtaik & Lee, Myeong-Ho, 1999. "An econometric analysis of the demand for access to mobile telephone networks," Information Economics and Policy, Elsevier, vol. 11(3), pages 297-305, September.
    14. Eugenio J. Miravete, 2003. "Choosing the Wrong Calling Plan? Ignorance and Learning," American Economic Review, American Economic Association, vol. 93(1), pages 297-310, March.
    15. Jeongwen Chiang, 1991. "A Simultaneous Approach to the Whether, What and How Much to Buy Questions," Marketing Science, INFORMS, vol. 10(4), pages 297-315.
    16. Peter E. Rossi & Robert E. McCulloch & Greg M. Allenby, 1996. "The Value of Purchase History Data in Target Marketing," Marketing Science, INFORMS, vol. 15(4), pages 321-340.
    17. Garbacz, Christopher & Thompson, Herbert G, Jr, 2003. "Estimating Telephone Demand with State Decennial Census Data from 1970-1990: Update with 2000 Data," Journal of Regulatory Economics, Springer, vol. 24(3), pages 373-378, November.
    18. Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-1130, December.
    19. Eugenio J. Miravete & Lars-Hendrik Röller, 2004. "Estimating Price-Cost Markups Under Nonlinear Pricing Competition," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 526-535, 04/05.
    20. Garbacz, Christopher & Thompson Jr, Herbert G., 2007. "Demand for telecommunication services in developing countries," Telecommunications Policy, Elsevier, vol. 31(5), pages 276-289, June.
    21. Moffitt, Robert, 1990. "The Econometrics of Kinked Budget Constraints," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 119-139, Spring.
    22. Lakshman Krishnamurthi & S. P. Raj, 1988. "A Model of Brand Choice and Purchase Quantity Price Sensitivities," Marketing Science, INFORMS, vol. 7(1), pages 1-20.
    23. Park, Rolla Edward & Wetzel, Bruce M & Mitchell, Bridger M, 1983. "Price Elasticities for Local Telephone Calls," Econometrica, Econometric Society, vol. 51(6), pages 1699-1730, November.
    24. K. Andersson & Ø Foros & F. Steen, 2009. "Text and voice: complements, substitutes or both?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 18(6), pages 1231-1247, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Kummer, Michael & Schulte, Patrick, 2014. "Money and privacy: Android market evidence," ZEW Discussion Papers 14-131, ZEW - Leibniz Centre for European Economic Research.
    2. Gerpott, Torsten J. & Thomas, Sandra, 2014. "Empirical research on mobile Internet usage: A meta-analysis of the literature," Telecommunications Policy, Elsevier, vol. 38(3), pages 291-310.
    3. Anindya Ghose & Sang Pil Han, 2014. "Estimating Demand for Mobile Applications in the New Economy," Management Science, INFORMS, vol. 60(6), pages 1470-1488, June.
    4. Wellmann, Nicolas, 2017. "OTT-Messaging and Mobile Telecommunication: A Joint Market? An Empirical Approach," 28th European Regional ITS Conference, Passau 2017 169503, International Telecommunications Society (ITS).
    5. Basalisco, Bruno, 2012. "The effect of user interaction on the demand for mobile text messages: Evidence from cross-country data," Information Economics and Policy, Elsevier, vol. 24(2), pages 132-144.
    6. Liang, Julienne, 2015. "How fixed mobile usage interact? Does FTTH deployment influence the interaction?," 26th European Regional ITS Conference, Madrid 2015 127157, International Telecommunications Society (ITS).
    7. Ludovic Stourm & Raghuram Iyengar & Eric T. Bradlow, 2020. "A Flexible Demand Model for Complements Using Household Production Theory," Marketing Science, INFORMS, vol. 39(4), pages 763-787, July.
    8. Wellmann, Nicolas, 2019. "Are OTT messaging and mobile telecommunication an interrelated market? An empirical analysis," Telecommunications Policy, Elsevier, vol. 43(9).
    9. 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.
    10. Marius F. Niculescu & Seungjin Whang, 2012. "Research Note ---Codiffusion of Wireless Voice and Data Services: An Empirical Analysis of the Japanese Mobile Telecommunications Market," Information Systems Research, INFORMS, vol. 23(1), pages 260-279, March.
    11. Lizhen Xu & Jason A. Duan & Yu Jeffrey Hu & Yuan Cheng & Yan Zhu, 2019. "Forward-Looking Behavior in Mobile Data Consumption and Targeted Promotion Design: A Dynamic Structural Model," Information Systems Research, INFORMS, vol. 30(2), pages 616-635, June.
    12. Griffin, Míde & Lyons, Sean & Mohan, Gretta & Joseph, Merin & Domhnaill, Ciarán Mac & Evans, John, 2022. "Intra-operator mobile plan switching: Evidence from linked survey and billing microdata," Telecommunications Policy, Elsevier, vol. 46(7).
    13. So Yeon Chun & Anton Ovchinnikov, 2019. "Strategic Consumers, Revenue Management, and the Design of Loyalty Programs," Management Science, INFORMS, vol. 65(9), pages 3969-3987, September.
    14. Leeflang, Peter, 2011. "Paving the way for “distinguished marketing”," International Journal of Research in Marketing, Elsevier, vol. 28(2), pages 76-88.
    15. Scott K. Shriver & Bryan Bollinger, 2022. "Demand Expansion and Cannibalization Effects from Retail Store Entry: A Structural Analysis of Multichannel Demand," Management Science, INFORMS, vol. 68(12), pages 8829-8856, December.
    16. Torsten J. Gerpott & Sandra Thomas & Michael Weichert, 2014. "Usage of established and novel mobile communication services: Substitutional, independent or complementary?," Information Systems Frontiers, Springer, vol. 16(3), pages 491-507, July.
    17. Wellmann, Nicolas, 2017. "OTT-messaging and mobile telecommunication: A joint market? - An empirical approach," DICE Discussion Papers 256, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    18. Yao Luo, 2011. "Nonlinear Pricing with Product Customization in Mobile Service Industry," Working Papers 11-28, NET Institute.
    19. Gerpott, Torsten J. & Meinert, Phil, 2016. "The impact of mobile Internet usage on mobile voice calling behavior: A two-level analysis of residential mobile communications customers in Germany," Telecommunications Policy, Elsevier, vol. 40(1), pages 62-76.
    20. Gadi Fibich & Roy Klein & Oded Koenigsberg & Eitan Muller, 2017. "Optimal Three-Part Tariff Plans," Operations Research, INFORMS, vol. 65(5), pages 1177-1189, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    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. Bölcskei, Vanda, 2010. "A távbeszélő-szolgáltatások keresleti modelljeinek áttekintése - különös tekintettel a vezetékes és mobilszolgáltatások közötti helyettesítés becslésére [A review of the demand models of telephone ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 517-535.
    3. David R. Bell & Jeongwen Chiang & V. Padmanabhan, 1999. "The Decomposition of Promotional Response: An Empirical Generalization," Marketing Science, INFORMS, vol. 18(4), pages 504-526.
    4. Grzybowski, Lukasz, 2014. "Fixed-to-mobile substitution in the European Union," Telecommunications Policy, Elsevier, vol. 38(7), pages 601-612.
    5. Nicholas Economides & Katja Seim & V. Brian Viard, 2008. "Quantifying the benefits of entry into local phone service," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 699-730, September.
    6. Grajek, Michal & Kretschmer, Tobias, 2009. "Usage and diffusion of cellular telephony, 1998-2004," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 238-249, March.
    7. Nitin Mehta, 2007. "Investigating Consumers' Purchase Incidence and Brand Choice Decisions Across Multiple Product Categories: A Theoretical and Empirical Analysis," Marketing Science, INFORMS, vol. 26(2), pages 196-217, 03-04.
    8. K. Andersson & Ø Foros & F. Steen, 2009. "Text and voice: complements, substitutes or both?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 18(6), pages 1231-1247, December.
    9. 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.
    10. Jie Zhang & Lakshman Krishnamurthi, 2004. "Customizing Promotions in Online Stores," Marketing Science, INFORMS, vol. 23(4), pages 561-578, June.
    11. Garbacz, Christopher & Thompson, Herbert Jr., 2005. "Universal telecommunication service: A world perspective," Information Economics and Policy, Elsevier, vol. 17(4), pages 495-512, October.
    12. Madden, Gary & Coble-Neal, Grant, 2004. "Economic determinants of global mobile telephony growth," Information Economics and Policy, Elsevier, vol. 16(4), pages 519-534, December.
    13. Harbord, David & Pagnozzi, Marco, 2008. "On-Net/Off-Net Price Discrimination and 'Bill-and-Keep' vs. 'Cost-Based' Regulation of Mobile Termination Rates," MPRA Paper 14540, University Library of Munich, Germany.
    14. Anja Lambrecht & Katja Seim & Bernd Skiera, 2007. "Does Uncertainty Matter? Consumer Behavior Under Three-Part Tariffs," Marketing Science, INFORMS, vol. 26(5), pages 698-710, 09-10.
    15. Lukasz Grzybowski & Chiraz Karamti, 2010. "Competition In Mobile Telephony In France And Germany," Manchester School, University of Manchester, vol. 78(6), pages 702-724, December.
    16. Ricardo Ribeiro & João Vareda, 2007. "Crowding Out or Complementarity in the Telecommunications Market?," Working Papers 07-33, NET Institute, revised Sep 2007.
    17. Michael Thacker & Wesley Wilson, 2015. "Telephony choices and the evolution of cell phones," Journal of Regulatory Economics, Springer, vol. 48(1), pages 1-25, August.
    18. Ward, Michael R. & Zheng, Shilin, 2012. "Mobile and fixed substitution for telephone service in China," Telecommunications Policy, Elsevier, vol. 36(4), pages 301-310.
    19. Olmstead, Sheila M. & Michael Hanemann, W. & Stavins, Robert N., 2007. "Water demand under alternative price structures," Journal of Environmental Economics and Management, Elsevier, vol. 54(2), pages 181-198, September.
    20. Bhat, Chandra R., 2005. "A multiple discrete-continuous extreme value model: formulation and application to discretionary time-use decisions," Transportation Research Part B: Methodological, Elsevier, vol. 39(8), pages 679-707, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:56:y:2010:i:2:p:234-252. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.