This paper investigates the dynamic relation between callers' social ties and their wireless phone service consumption. We construct a large pair-level panel dataset with information on the number of each pair's common contacts, calling activities, prices, and each caller's characteristics over a one-year time period. We estimate a dynamic model that encapsulates the evolving relationship between each pair of consumers. We find the amount of communications between a pair of consumers increases with the strength of their tie, which is higher when these two consumers share more common contacts. Our results support the reciprocity rule in telephone calls, i.e., when individual A initiates more (less) phone calls to individual B in one month, their social tie will be strengthened (weakened) and individual B will make more (less) calls to individual A in the subsequent months. We demonstrate the implications of our results in evaluating the return of temporary price promotions and designing price plans. Our results underscore the importance of incorporating social network characteristics in the study of telecommunications markets.
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Paper provided by NET Institute in its series Working Papers with number
09-12.