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The Demand for Local Telephone Service: A Fully Discrete Model of Residential Calling Patterns and Service Choices

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Author Info

  • Kenneth E. Train
  • Daniel L. McFadden
  • Moshe Ben-Akiva

Abstract

We present an empirical model of households' choices among local telephone service options (for example, between flat-rate and measured service) and the interrelation of these choices with the number and average duration of local calls households make at each time of day to each geographical zone. Using a nested logit model with estimation performed on a randomly selected subset of the households' calling patterns, we calculate elasticities of demand for each local service option, number of calls, average duration, and revenues with respect to the fixed monthly charges and the usage charges for calling under each option. We find moderate price elasticities of number of calls with respect to usage charges for households subscribing to measured service. Nevertheless, raising usage charges has a negligible effect on revenues, since a sufficient number of households either originally subscribe to flat-rate service or convert to flat-rate service in response to higher usage charges. We find a high elasticity of demand for each service option with respect to its fixed monthly fee. This indicates high substitutability among service options. The shift among service options induces new calling patterns, which we find to be a small but not negligible indirect effect.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 18 (1987)
Issue (Month): 1 (Spring)
Pages: 109-123

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Handle: RePEc:rje:randje:v:18:y:1987:i:spring:p:109-123

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Cited by:
  1. Nicholas Economides & Joacim Tag, 2007. "Net Neutrality on the Internet: A Two-sided Market Analysis," Working Papers 07-27, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Pérez Montes, Carlos, 2013. "Regulatory bias in the price structure of local telephone service," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 462-476.
  3. Matthew Gentzkow, 2006. "Valuing New Goods in a Model with Complementarities: Online Newspapers," NBER Working Papers 12562, National Bureau of Economic Research, Inc.
  4. Huang, Ching-I, 2008. "Intra-Household Effects on Demand for Telephone Service: Empirical Evidence," MPRA Paper 6813, University Library of Munich, Germany.
  5. Lukasz Grzybowski & Pedro Pereira, 2007. "Merger Simulation in Mobile Telephony in Portugal," Working Papers 07-12, NET Institute, revised Sep 2007.
  6. Christiadi & Brian Cushing, 2007. "Conditional Logit, IIA, and Alternatives for Estimating Models of Interstate Migration," Working Papers 200704, Regional Research Institute, West Virginia University.
  7. Laura Nurski, 2012. "Net Neutrality, Foreclosure and the Fast Lane: An empirical study of the UK," Working Papers 12-13, NET Institute.
  8. Allender, William J. & Richards, Timothy J., 2009. "Measures of Brand Loyalty," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49536, Agricultural and Applied Economics Association.
  9. Jiyoung Kim, 2006. "A Structural Analysis for Consumer's Dynamic Switching Decision in the Cellular Service Industry," Working Papers 06-24, NET Institute, revised Oct 2006.
  10. Bölcskei, Vanda, 2010. "A távbeszélő-szolgáltatások keresleti modelljeinek áttekintése - különös tekintettel a vezetékes és mobilszolgáltatások közötti helyettesítés becslésére
    [A review of the demand
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 517-535.
  11. Pereira, Pedro & Ribeiro, Tiago & Vareda, João, 2013. "Delineating markets for bundles with consumer level data: The case of triple-play," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 760-773.
  12. 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.
  13. Martin Gaynor & Yunfeng Shi & Rahul Telang & William Vogt, 2005. "Cell Phone Demand and Consumer Learning – An Empirical Analysis," Working Papers 05-28, NET Institute, revised Oct 2005.
  14. Cristina Berliri & Valentino Parisi, 2006. "The Distributive and Labor Supply Impact of the Minimum Insertion Income: The Case of Italy," International Advances in Economic Research, Springer, vol. 12(2), pages 213-227, May.

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