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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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  1. Heli Koski & Tobias Kretschmer, 2005. "Entry, standards and competition : firm strategies and the diffusion of mobile telephony," LSE Research Online Documents on Economics 801, London School of Economics and Political Science, LSE Library.
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  4. Liikanen, Jukka & Stoneman, Paul & Toivanen, Otto, 2004. "Intergenerational effects in the diffusion of new technology: the case of mobile phones," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1137-1154, November.
  5. Ralf Dewenter & Justus Haucap, 2008. "Demand Elasticities for Mobile Telecommunications in Austria," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(1), pages 49-63, February.
  6. 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.
  7. Gruber H. & Verboven F., 1999. "The evolution of markets under entry and standards regulation: the case of a global mobile telecommunications," Working Papers 1999038, University of Antwerp, Faculty of Applied Economics.
  8. 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.
  9. Joshua S. Gans & Stephen P. King & Julian Wright, 2005. "Wireless Communications," Monash Economics Working Papers archive-45, Monash University, Department of Economics.
  10. 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.
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  12. Jang, Show-Ling & Dai, Shau-Chi & Sung, Simona, 2005. "The pattern and externality effect of diffusion of mobile telecommunications: the case of the OECD and Taiwan," Information Economics and Policy, Elsevier, vol. 17(2), pages 133-148, March.
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  14. Dewenter, Ralf & Haucap, Justus, 2004. "Estimating Demand Elasticities for Mobile Telecommunications in Austria," Working Paper 33/2004, Helmut Schmidt University, Hamburg.
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Cited by:
  1. Genakos, Christos & Valletti, Tommaso, 2011. "Seesaw in the air: Interconnection regulation and the structure of mobile tariffs," Information Economics and Policy, Elsevier, vol. 23(2), pages 159-170, June.
  2. 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.
  3. 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.
  4. Lukasz Grzybowski & Pedro Pereira, 2007. "The Complementarity between Calls and Messages in Mobile Telephony," Working Papers 27, Portuguese Competition Authority.
  5. 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.

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