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Estimating Demand for Cellular Phone Service under Nonlinear Pricing

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  • Huang, Ching-I

Abstract

Cellular phone carriers typically offer complicated nonlinear tariffs. Consumers make a discrete choice among several rate plans. Each plan has a nonlinear price schedule, and price is usually lower for in-network calls. I present an empirical framework to estimate demand under such nonlinear pricing schemes by using parsimonious data and apply the estimation method to analyze the cellular phone service market in Taiwan. Based on the estimated model, I evaluate the impacts of termination-based pricing schemes on the market structure. While the existence of in-network discounts causes considerable tipping effects on market shares, the effects come primarily from reducing the average prices, not from the difference between in-network and off-network prices. There is no evidence showing that termination-based pricing by itself has significant effects on market structure.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6459.

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Date of creation: Oct 2007
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Handle: RePEc:pra:mprapa:6459

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Keywords: termination-based price discrimination; optional rate plans; cellular phone service; structural estimation;

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References

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  1. Nicholas Economides & Katja Seim & V. Brian Viard, 2005. "Quantifying the Benefits of Entry into Local Phone Service," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 05-17, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Harikesh Nair & Jean-Pierre Dubé & Pradeep Chintagunta, 2005. "Accounting for Primary and Secondary Demand Effects with Aggregate Data," Marketing Science, INFORMS, INFORMS, vol. 24(3), pages 444-460, November.
  3. Eugenio J. Miravete, 2002. "Estimating Demand for Local Telephone Service with Asymmetric Information and Optional Calling Plans," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 943-971.
  4. Jerry A. Hausman, 1997. "Valuing the Effect of Regulation on New Services in Telecommunications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1997 Micr), pages 1-54.
  5. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 841-90, July.
  6. Sridhar Narayanan & Pradeep Chintagunta & Eugenio Miravete, 2007. "The role of self selection, usage uncertainty and learning in the demand for local telephone service," Quantitative Marketing and Economics, Springer, Springer, vol. 5(1), pages 1-34, March.
  7. Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, Elsevier, vol. 71(3), pages 413-420, June.
  8. Michal Grajek, 2003. "Estimating Network Effects and Compatibility in Mobile Telecommunications," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) SP II 2003-26, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  9. Phillip Leslie, 2004. "Price Discrimination in Broadway Theater," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 520-541, Autumn.
  10. 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.
  11. Anja Lambrecht & Katja Seim & Bernd Skiera, 2007. "Does Uncertainty Matter? Consumer Behavior Under Three-Part Tariffs," Marketing Science, INFORMS, INFORMS, vol. 26(5), pages 698-710, 09-10.
  12. Kim, Hee-Su & Kwon, Namhoon, 2003. "The advantage of network size in acquiring new subscribers: a conditional logit analysis of the Korean mobile telephony market," Information Economics and Policy, Elsevier, Elsevier, vol. 15(1), pages 17-33, March.
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Cited by:
  1. Koichiro Ito, 2012. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," NBER Working Papers 18533, National Bureau of Economic Research, Inc.
  2. Michael D. Grubb & Matthew Osborne, 2012. "Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock," Boston College Working Papers in Economics, Boston College Department of Economics 829, Boston College Department of Economics.
  3. Bölcskei, Vanda, 2010. "A távbeszélő-szolgáltatások keresleti modelljeinek áttekintése - különös tekintettel a vezetékes és mobilszolgáltatások közötti helyettesítés becslésére
    [A review of the demand
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 517-535.
  4. Patrick Bajari & Jeremy Fox & Stephen Ryan, 2008. "Evaluating wireless carrier consolidation using semiparametric demand estimation," Quantitative Marketing and Economics, Springer, Springer, vol. 6(4), pages 299-338, December.
  5. Huang, Ching-I, 2008. "Intra-Household Effects on Demand for Telephone Service: Empirical Evidence," MPRA Paper 6813, University Library of Munich, Germany.
  6. Fruchter, Gila E. & Sigué, Simon P., 2013. "Dynamic pricing for subscription services," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(11), pages 2180-2194.
  7. Sridhar Narayanan & Pradeep Chintagunta & Eugenio Miravete, 2007. "The role of self selection, usage uncertainty and learning in the demand for local telephone service," Quantitative Marketing and Economics, Springer, Springer, vol. 5(1), pages 1-34, March.

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