Telecommunications Adoption Versus Adjustment Costs in an Era of Major Technological Change

This study investigates interrelated factor demands for a multi-output technology (voice and data output) in the Australian telecommunication industry over a long period of time (1922 through 1983). While a dynamic model would appear to be necessary to investigate disequilibrium associated with ongoing network expansion for much of the 20th Century, it is also arguable that ‘predictable’ or ‘continuous’ aspects of this expansion could have been factored into carrier provider plans so that massive technological change over this period is more suggestive of an overlay of steady technological progress with periodic discontinuities than it is of continuous disequilibrium adjustment. That is, while (continuous expansion) adjustment costs may be present, they could well be minor compared to (occasional discontinuous) adoption costs. Because of the long time period and the reality of major structural breaks due to technological advance, the study overlays the standard short-run (disequilibrium) versus long-run (equilibrium) classification with a continuous / discontinuous dichotomisation. If discontinuities due to occasional massive technological changes are not taken into account, it could be the case that rapid equilibrium adjustments at times may be mistaken for disequilibrium adjustments, with consequent mismeasurement of adoption versus adjustment costs