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Text and Voice: Complements, Substitutes or Both?

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  • Andersson, Kjetil
  • Foros, Øystein
  • Steen, Frode

Abstract

Text messaging has become an important revenue component for European and Asian mobile operators. We develop a simple model of demand for mobile services incorporating the existence of call externalities and network effects. We show that when incoming messages and calls stimulate outgoing communications, services that are perceived as substitutes, such as mobile text and voice, may evolve into complements in terms of the price effect when the network size becomes large. We estimate the demand for text messaging in the Norwegian market and find that the cross-price effect of voice depends on the network size. Voice is a substitute for text messages for small network sizes, and a complement for large network sizes.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5780.

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Date of creation: Aug 2006
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Handle: RePEc:cpr:ceprdp:5780

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Related research

Keywords: call externalities; demand structure; network effects; positive feedback effects; text messaging;

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References

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Citations

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Cited by:
  1. Christos Genakos & Tommaso Valletti, 2011. "Seesaw in the Air: Interconnection Regulation and the Structure of Mobile Tariffs," CEP Discussion Papers dp1045, Centre for Economic Performance, LSE.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

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