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Network effects and the choice of mobile phone operator

In: Innovation, Industrial Dynamics and Structural Transformation

Author

Listed:
  • Daniel Birke

    (Nottingham University Business School)

  • G. M. Peter Swann

    (Nottingham University Business School)

Abstract

This paper explores the role of network effects in the consumer’s choice of mobile phone operators in the UK. It contributes to the existing literature by taking a new approach to testing for direct network effects and by using individual-level data, which allows to analyse the impact that the immediate social network has on consumer choice in network markets. For our empirical analysis we use two sources of data: market-level data from the British telecommunications regulator OFCOM and micro-level data on consumers’ usage of mobile telephones from the survey, Home OnLine. We estimate two classes of models which illustrate the role of network effects. The first is an aggregate model of the comparative volume of on-net and off-net calls. This finds that the proportion of off-net calls falls as mobile operators charge a premium for off-net calls, but even in the absence of any price differential between on-net and off-net, there is still a form of pure network effect, where a disproportionate number of calls are on-net. The second is a model of the individual consumer’s choice of operator. This finds that individual choice shows considerable inertia, as expected, but is heavily influenced by the choices of others in the same household. There is some evidence that individual choice of operator is influenced by the total number of subscribers for each operator, but a much stronger effect is the operator choice of other household members.

Suggested Citation

  • Daniel Birke & G. M. Peter Swann, 2007. "Network effects and the choice of mobile phone operator," Springer Books, in: Uwe Cantner & Franco Malerba (ed.), Innovation, Industrial Dynamics and Structural Transformation, pages 109-128, Springer.
  • Handle: RePEc:spr:sprchp:978-3-540-49465-2_7
    DOI: 10.1007/978-3-540-49465-2_7
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    References listed on IDEAS

    as
    1. Gautam Gowrisankaran & Joanna Stavins, 2004. "Network Externalities and Technology Adoption: Lessons from Electronic Payments," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 260-276, Summer.
    2. Swann, G. M. Peter, 2002. "The functional form of network effects," Information Economics and Policy, Elsevier, vol. 14(3), pages 417-429, September.
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    More about this item

    Keywords

    Network effects; Social networks; Mobile telecommunications; Discrete choice;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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