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Evaluating Wireless Carrier Consolidation Using Semiparametric Demand Estimation

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Author Info
Patrick Bajari
Jeremy T. Fox
Stephen Ryan

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Abstract

The US mobile phone service industry has dramatically consolidated over the last two decades. One justification for consolidation is that merged firms can provide consumers with larger coverage areas at lower costs. We estimate the willingness to pay for national coverage to evaluate this motivation for past consolidation. As market level quantity data is not publicly available, we devise an econometric procedure that allows us to estimate the willingness to pay using market share ranks collected from a popular online retailer, Amazon. Our semiparametric maximum score estimator controls for consumers%u2019 heterogeneous preferences for carriers, handsets and minutes of calling time. We find that national coverage is strongly valued by consumers, providing an efficiency justification for across-market mergers. The methods we propose can estimate demand for other products using data from Amazon or other online retailers where quantities are not observed, but product ranks are observed. Since Amazon data can easily be gathered by researchers, these methods may be useful for the analysis of other product markets where high quality data are not publicly available.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12425.

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Date of creation: Aug 2006
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Handle: RePEc:nbr:nberwo:12425

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Find related papers by JEL classification:
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General

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