IDEAS home Printed from https://ideas.repec.org/p/cri/cespri/wp199.html
   My bibliography  Save this paper

Demand and Innovation in Services: the Case of Mobile Communications

Author

Listed:
  • Nicoletta Corrocher

    (CESPRI - Bocconi University, Milan, Italy and NFH - University of Tromso, Tromso, Norway.)

  • Lorenzo Zirulia

    (CESPRI - Bocconi University, Milan and University of Bologna, Bologna, Italy.)

Abstract

This paper aims at analyzing the characteristics and the determinants of innovation in the mobile communication service industry, by emphasising in particular the role of demand. In a Shumpeterian spirit, we argue that competition in this sector crucially depends upon innovation, and that, given the specific characteristics of the industry, firms' innovative strategies are strongly affected by demand. Our main point is that in a context of uncertainty, demand affects firms' innovative strategies in two ways: first, by providing information on users' behaviour and by increasing the capability of market segmentation; second, by providing invcentives to innovate. This argument is supported by an empirical analysis carried out on the basis of an original dataset including all the tariff plans offered in the history of the Italian market up to 2005. We find that both firms' installed base of customers and market saturation play a role in shaping firms' innovative activities, in terms of number and type of innovations.

Suggested Citation

  • Nicoletta Corrocher & Lorenzo Zirulia, 2007. "Demand and Innovation in Services: the Case of Mobile Communications," KITeS Working Papers 199, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Mar 2007.
    • Handle: RePEc:cri:cespri:wp199
    as

    Download full text from publisher

    File URL: ftp://ftp.unibocconi.it/pub/RePEc/cri/papers/WP199CorrocherZirulia.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Valletti, Tommaso M & Cave, Martin, 1998. "Competition in UK mobile communications," Telecommunications Policy, Elsevier, vol. 22(2), pages 109-131, March.
    2. Eric von Hippel, 1986. "Lead Users: A Source of Novel Product Concepts," Management Science, INFORMS, vol. 32(7), pages 791-805, July.
    3. Roberto Fontana & Marco Guerzoni, 2008. "Incentives and uncertainty: an empirical analysis of the impact of demand on innovation," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 32(6), pages 927-946, November.
    4. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
    5. Gallouj, Faiz & Weinstein, Olivier, 1997. "Innovation in services," Research Policy, Elsevier, vol. 26(4-5), pages 537-556, December.
    6. Lars A. Stole, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 529-562, December.
    7. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    8. 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.
    9. Nick von Tunzelmann, 2009. "Competencies Versus Capabilities: A Reassessment," Economia politica, Società editrice il Mulino, issue 3, pages 435-464.
    10. Joshua S. Gans & Stephen P. King & Julian Wright, 2005. "Wireless Communications," Monash Economics Working Papers archive-45, Monash University, Department of Economics.
    11. Paul Windrum, 2005. "Heterogeneous preferences and new innovation cycles in mature industries: the amateur camera industry 1955--1974," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 14(6), pages 1043-1074, December.
    12. Corrocher, Nicoletta & Zirulia, Lorenzo, 0. "Me and you and everyone we know: An empirical analysis of local network effects in mobile communications," Telecommunications Policy, Elsevier, vol. 33(1-2), pages 68-79, February.
    13. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 31, pages 1967-2072, Elsevier.
    14. Valletti, Tommaso M., 1999. "A model of competition in mobile communications," Information Economics and Policy, Elsevier, vol. 11(1), pages 61-72, March.
    15. 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.
    16. repec:eee:ecolet:v:71:y:2001:i:3:p:413-42 is not listed on IDEAS
    17. Philip M. Parker & Lars-Hendrik Roller, 1997. "Collusive Conduct in Duopolies: Multimarket Contact and Cross-Ownership in the Mobile Telephone Industry," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 304-322, Summer.
    18. Miravete, Eugenio, 2007. "The Limited Gains From Complex Tariffs," Working Paper Series 3971, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    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. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
    21. Saviotti, P. P. & Metcalfe, J. S., 1984. "A theoretical approach to the construction of technological output indicators," Research Policy, Elsevier, vol. 13(3), pages 141-151, June.
    22. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring.
    23. Pamela D. Morrison & John H. Roberts & Eric von Hippel, 2000. "Determinants of User Innovation and Innovation Sharing in a Local Market," Management Science, INFORMS, vol. 46(12), pages 1513-1527, December.
    24. Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, vol. 71(3), pages 413-420, June.
    25. Bruce Tether, 2005. "Do Services Innovate (Differently)? Insights from the European Innobarometer Survey," Industry and Innovation, Taylor & Francis Journals, vol. 12(2), pages 153-184.
    26. Ron Adner & Daniel Levinthal, 2001. "Demand Heterogeneity and Technology Evolution: Implications for Product and Process Innovation," Management Science, INFORMS, vol. 47(5), pages 611-628, May.
    27. Schmookler, Jacob, 1962. "Economic Sources of Inventive Activity," The Journal of Economic History, Cambridge University Press, vol. 22(1), pages 1-20, March.
    28. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    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. Francisco J. Santos-Arteaga & Debora Di Caprio & Madjid Tavana & Aidan O'Connor, 2017. "Formalising The Demand For Technological Innovations: Rational Herds, Market Frictions And Network Effects," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 21(02), pages 1-43, February.
    2. Machado Léo, Ricardo & Tello‐Gamarra, Jorge, 2016. "Inovac¸ão em servic¸os: estado da arte e perspectivas futuras [Innovation in services: state of the art and future perspectives]," MPRA Paper 82195, University Library of Munich, Germany, revised 29 Mar 2017.
    3. Cecere, Grazia & Corrocher, Nicoletta & Battaglia, Riccardo David, 2015. "Innovation and competition in the smartphone industry: Is there a dominant design?," Telecommunications Policy, Elsevier, vol. 39(3), pages 162-175.
    4. Mu, Yu & Bossink, Bart & Vinig, Tsvi, 2022. "Developing a classification scheme of service innovation," Annals of Tourism Research, Elsevier, vol. 95(C).
    5. Lokesh Jasrai, 2014. "Measuring Mobile Telecom Service Innovativeness Among Youth," Paradigm, , vol. 18(1), pages 103-116, June.
    6. Snyder, Hannah & Witell, Lars & Gustafsson, Anders & Fombelle, Paul & Kristensson, Per, 2016. "Identifying categories of service innovation: A review and synthesis of the literature," Journal of Business Research, Elsevier, vol. 69(7), pages 2401-2408.
    7. Srinuan, Chalita & Srinuan, Pratompong & Bohlin, Erik, 2012. "Exploring mobile pricing strategies and innovations in the Thai mobile communications market," 19th ITS Biennial Conference, Bangkok 2012: Moving Forward with Future Technologies - Opening a Platform for All 72522, International Telecommunications Society (ITS).
    8. Xiao Zhou & Lu Huang & Yi Zhang & Miaomiao Yu, 2019. "A hybrid approach to detecting technological recombination based on text mining and patent network analysis," Scientometrics, Springer;Akadémiai Kiadó, vol. 121(2), pages 699-737, November.
    9. Lijie Feng & Yilang Li & Zhenfeng Liu & Jinfeng Wang, 2020. "Idea Generation and New Direction for Exploitation Technologies of Coal-Seam Gas through Recombinative Innovation and Patent Analysis," IJERPH, MDPI, vol. 17(8), pages 1-21, April.
    10. Prajogo, Daniel I., 2016. "The strategic fit between innovation strategies and business environment in delivering business performance," International Journal of Production Economics, Elsevier, vol. 171(P2), pages 241-249.
    11. Karacuka, Mehmet & Çatık, A. Nazif & Haucap, Justus, 2013. "Consumer choice and local network effects in mobile telecommunications in Turkey," Telecommunications Policy, Elsevier, vol. 37(4), pages 334-344.
    12. Jordan Robert Gamble & Michael Brennan & Rodney Mcadam, 2016. "A Contemporary And Systematic Literature Review Of User-Centric Innovation: A Consumer Perspective," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 20(01), pages 1-45, January.
    13. Claussen, Jörg & Essling, Christian & Kretschmer, Tobias, 2015. "When less can be more – Setting technology levels in complementary goods markets," Research Policy, Elsevier, vol. 44(2), pages 328-339.
    14. Christos Genakos & Tobias Kretschmer & Ambre Nicolle, 2021. "Strategic confusopoly: evidence from the UK mobile market," CEP Discussion Papers dp1810, Centre for Economic Performance, LSE.
    15. Grazia Cecere, 2012. "Economics of soft innovation: a review article," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(8), pages 827-835, November.
    16. Guan, Jian Cheng & Yan, Yan, 2016. "Technological proximity and recombinative innovation in the alternative energy field," Research Policy, Elsevier, vol. 45(7), pages 1460-1473.
    17. Sang-Gun Lee & Eui-bang Lee & Chang-Gyu Yang, 2014. "Strategies for ICT product diffusion: the case of the Korean mobile communications market," Service Business, Springer;Pan-Pacific Business Association, vol. 8(1), pages 65-81, March.
    18. Cailou Jiang & Ying Zhang & Qun Zhao & Chong Wu, 2020. "The Impact of Purchase Subsidy on Enterprises’ R&D Efforts: Evidence from China’s New Energy Vehicle Industry," Sustainability, MDPI, vol. 12(3), pages 1-10, February.
    19. Polykalas, Spyros E. & Prezerakos, George N., 2015. "Measuring the impact of market competition analysis process in EU׳s electronic communications sector: Catalyst or impediment towards market competition?," Telecommunications Policy, Elsevier, vol. 39(3), pages 241-252.

    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. Srinuan, Chalita & Srinuan, Pratompong & Bohlin, Erik, 2012. "Exploring mobile pricing strategies and innovations in the Thai mobile communications market," 19th ITS Biennial Conference, Bangkok 2012: Moving Forward with Future Technologies - Opening a Platform for All 72522, International Telecommunications Society (ITS).
    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. Nicoletta Corrocher & Lorenzo Zirulia, 2005. "Switching Costs, Consumers' Heterogeneity and Price Discrimination in the Mobile Communications Industry," KITeS Working Papers 166, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised May 2005.
    4. Mark Armstrong & Julian Wright, 2009. "Mobile Call Termination," Economic Journal, Royal Economic Society, vol. 119(538), pages 270-307, June.
    5. Kocsis, Viktória, 2005. "A hálózatok közötti aszimmetria hatása a mobilszolgáltatók végződtetési díjára [The effect of asymmetry among networks on the provision charges of mobile telephone services]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 663-685.
    6. Michal Grajek, 2003. "Estimating Network Effects and Compatibility in Mobile Telecommunications," CIG Working Papers SP II 2003-26, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    7. Karacuka, Mehmet & Çatık, A. Nazif & Haucap, Justus, 2013. "Consumer choice and local network effects in mobile telecommunications in Turkey," Telecommunications Policy, Elsevier, vol. 37(4), pages 334-344.
    8. Nicoletta Corrocher & Lorenzo Zirulia, 2010. "Switching costs, consumer heterogeneity and price discrimination," Journal of Economics, Springer, vol. 101(2), pages 149-167, October.
    9. Roberto Fontana & Marco Guerzoni, 2008. "Incentives and uncertainty: an empirical analysis of the impact of demand on innovation," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 32(6), pages 927-946, November.
    10. Sobolewski, Maciej & Czajkowski, MikoŁaj, 2012. "Network effects and preference heterogeneity in the case of mobile telecommunications markets," Telecommunications Policy, Elsevier, vol. 36(3), pages 197-211.
    11. Grajek, Michal, 2010. "Estimating network effects and compatibility: Evidence from the Polish mobile market," Information Economics and Policy, Elsevier, vol. 22(2), pages 130-143, May.
    12. Joshua S. Gans & Stephen P. King & Julian Wright, 2005. "Wireless Communications," Monash Economics Working Papers archive-45, Monash University, Department of Economics.
    13. Mark Armstrong & David E.M. Sappington, 2006. "Regulation, Competition and Liberalization," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 325-366, June.
    14. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    15. Berger, Ulrich, 2005. "Bill-and-keep vs. cost-based access pricing revisited," Economics Letters, Elsevier, vol. 86(1), pages 107-112, January.
    16. Benoit Desmarchelier & Faridah Djellal & Faïz Gallouj, 2018. "L'innovation dans les services publics à la lumière des paradigmes de l'administration publique et des perspectives des Service Innovation Studies," Working Papers halshs-01934287, HAL.
    17. Eugenio J. Miravete, 2004. "The Doubtful Profitability of Foggy Pricing," Working Papers 04-07, NET Institute.
    18. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    19. Taalbi, Josef, 2017. "What drives innovation? Evidence from economic history," Research Policy, Elsevier, vol. 46(8), pages 1437-1453.
    20. Crass, Dirk & Schwiebacher, Franz, 2013. "Do trademarks diminish the substitutability of products in innovative knowledge-intensive services?," ZEW Discussion Papers 13-061, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    Keywords

    Service Innovation; Demand Characteristics; Mobile Communications.;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:cri:cespri:wp199. 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: Valerio Sterzi (email available below). General contact details of provider: http://www.kites.unibocconi.it/ .

    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.