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Estimating network effects and compatibility in mobile telecommunications

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  • Michal Grajek

    (ESMT European School of Management and Technology)

Abstract

I develop a structural demand model for mobile telephone service, which facilitates the identification of network effects and compatibility between networks. Network effects are measured by the dependence of consumer willingness to pay on the installed base of subscribers. Compatibility is measured by the relative extent of cross- and own-network effects. I then estimate the model using quarterly panel data from the Polish mobile telephone industry from 1996-2001 and find strong network effects and—despite full interconnection of the mobile telephone networks—low compatibility. I also show that ignoring network effects leads to an overestimation of elasticity of demand.

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Bibliographic Info

Paper provided by ESMT European School of Management and Technology in its series ESMT Research Working Papers with number ESMT-07-001.

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Length: 43 pages
Date of creation: 27 Sep 2007
Date of revision:
Publication status: Published in Information Economics and Policy 22(2): 130–143.
Handle: RePEc:esm:wpaper:esmt-07-001

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Keywords: Structural Econometric Model; Network Effects; Compatibility; Mobile Telecommunications;

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References

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Citations

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Cited by:
  1. Baraldi, A. Laura, 2008. "Network Externalities and Critical Mass in the Mobile Telephone Network: a Panel Data Estimation," MPRA Paper 13373, University Library of Munich, Germany.
  2. Daniel Birke, 2009. "The Economics Of Networks: A Survey Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 762-793, 09.
  3. Czajkowski, Mikołaj & Sobolewski, Maciej, 2013. "Estimation of switching costs and network effects in mobile telecommunications in Poland," 24th European Regional ITS Conference, Florence 2013 88515, International Telecommunications Society (ITS).
  4. Heli Koski & Tobias Kretschmer, 2004. "Entry, Standards and Competition: Firm Strategies and the Diffusion of Mobile Telephony," Review of Industrial Organization, Springer, vol. 26(1), pages 89-113, November.
  5. Laura Rinaldi, 2008. "Estimation of network externalities and critical mass in the mobile telephone market: a panel data analysis of the OECD countries," Working Papers 1_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
  6. Doganoglu, Toker & Grzybowski, Lukasz, 2007. "Estimating network effects in mobile telephony in Germany," Information Economics and Policy, Elsevier, vol. 19(1), pages 65-79, March.
  7. Zulima Fernández & Belén Usero, 2007. "The erosion of pioneer advantage in the European mobile telecommunications industry," Service Business, Springer, vol. 1(3), pages 195-210, September.
  8. Michal Grajek & Tobias Kretschmer, 2006. "Usage and Diffusion of Cellular Telephony, 1998-2004," CIG Working Papers SP II 2006-20, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  9. Czajkowski, Mikolaj & Sobolewski, Maciej, 2010. "Measuring Network Effects in Mobile Telecommunications Markets with Stated‐Preference Valuation Methods," 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation 5, International Telecommunications Society (ITS).
  10. Pagani, Margherita & Fine, Charles H., 2008. "Value network dynamics in 3G-4G wireless communications: A systems thinking approach to strategic value assessment," Journal of Business Research, Elsevier, vol. 61(11), pages 1102-1112, November.
  11. Jean-Michel HUET & Isabelle VIENNOIS & Pierre LABARTHE & Anas EL BARKANI, 2012. "Impact Study of the Arrival of a New Mobile Phone Operator in Haiti," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(86), pages 175-192, 2nd quart.
  12. Ching-I Huang, 2008. "Estimating demand for cellular phone service under nonlinear pricing," Quantitative Marketing and Economics, Springer, vol. 6(4), pages 371-413, December.
  13. Mikołaj Czajkowski & Maciej Sobolewski, 2013. "Switching Costs and Network Effects – How Much Do they Really Matter in Mobile Telecommunications?," Working Papers 2013-29, Faculty of Economic Sciences, University of Warsaw.
  14. Usero, Belén & Fernández, Zulima, 2009. "First come, first served: How market and non-market actions influence pioneer market share," Journal of Business Research, Elsevier, vol. 62(11), pages 1139-1145, November.

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