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Measuring Quality Change due to Technological Externality in Multi-Feature Service Bundles

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  • Gupta, Abhay

Abstract

Technological innovation, externalities and network effects keep shifting the preference parameters in cellular telecommunication service sector. The paper suggests a framework to model these changes.It notes two channels that affect the service prices (in possibly opposite ways). In each corresponding period, consumer with lower reservation prices are shopping for the services. But these reservation prices are going up due to complementarity/ network effects. Under some reasonable assumptions on industry and cost structure, market data can be used to identify these changes. A price index is suggested that decomposes service bundle price changes into the change in price for same-quality of service and change in quality of the service bundle. Some interesting properties of these indexes are also discussed.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9284.

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Date of creation: Nov 2007
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Handle: RePEc:pra:mprapa:9284

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  1. Feenstra, R.C., 1995. "Exact Hedonic Price Indexes," Papers 95-11, California Davis - Institute of Governmental Affairs.
  2. G.C. Archibald & B.C. Eaton & Richard Lipsey, 1982. "Address Models of Value Theory," Working Papers 495, Queen's University, Department of Economics.
  3. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
  4. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  5. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
  6. R. Venkatesh & Wagner Kamakura, 2003. "Optimal Bundling and Pricing under a Monopoly: Contrasting Complements and Substitutes from Independently Valued Products," The Journal of Business, University of Chicago Press, vol. 76(2), pages 211-232, April.
  7. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages S211-30, January.
  8. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
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