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The effect of prices on fixed and mobile telephone penetration: Using price subsidies as natural experiments

  • Ward, Michael R.
  • Woroch, Glenn A.

A natural experiment, unintentionally conducted by the price subsidy program Lifeline Assistance, underpins our innovative strategy to estimate consumer demand for communications services. Using a national household panel containing demographic and billing information, we estimate own and cross-elasticities of demand for fixed and mobile services and find moderate substitution between the two. We control for the role of income effects by showing the subsidy has little effect on consumption of similar products and services. To account for potential bias due to endogeneity of program participation, a difference-in-differences analysis of re-sampled households results in estimates similar to the cross-sectional analysis. An asymmetry in the response to Lifeline participation arose depending on whether a household added or dropped Lifeline between samplings. We use the estimated demand parameters to simulate the impact of making the Lifeline program universal, or eliminating it altogether. In either case we find the net impact on combined fixed and mobile penetration is small.

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Article provided by Elsevier in its journal Information Economics and Policy.

Volume (Year): 22 (2010)
Issue (Month): 1 (March)
Pages: 18-32

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Handle: RePEc:eee:iepoli:v:22:y:2010:i:1:p:18-32
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505549

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  1. Eriksson, Ross C & Kaserman, David L & Mayo, John W, 1998. "Targeted and Untargeted Subsidy Schemes: Evidence from Postdivestiture Efforts to Promote Universal Telephone Service," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 477-502, October.
  2. repec:cup:cbooks:9780521296762 is not listed on IDEAS
  3. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
  4. Burton Mark & Macher Jeffrey & Mayo John W, 2007. "Understanding Participation in Social Programs: Why Don't Households Pick up the Lifeline?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-28, November.
  5. Rodini, Mark & Ward, Michael R. & Woroch, Glenn A., 0. "Going mobile: substitutability between fixed and mobile access," Telecommunications Policy, Elsevier, vol. 27(5-6), pages 457-476, June.
  6. Timothy Besley & Anne Case, 1994. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," NBER Working Papers 4956, National Bureau of Economic Research, Inc.
  7. Nakil Sung & Yong-Hun Lee, 2002. "Substitution between Mobile and Fixed Telephones in Korea," Review of Industrial Organization, Springer, vol. 20(4), pages 367-374, June.
  8. 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.
  9. Hausman, Jerry, 2000. "Efficiency Effects on the U.S. Economy from Wireless Taxation," National Tax Journal, National Tax Association, vol. 53(n. 3), pages 733-42, September.
  10. Vogelsang, Ingo, 2010. "The relationship between mobile and fixed-line communications: A survey," Information Economics and Policy, Elsevier, vol. 22(1), pages 4-17, March.
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