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Network effects and preference heterogeneity in the case of mobile telecommunications markets

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  • Sobolewski, Maciej
  • Czajkowski, MikoŁaj

Abstract

This paper demonstrates how revealed- and stated-preference analyses can be used for modeling network effects in the field of mobile telecommunications. The aim of this study was to verify if network effects may still play a role in the Polish mobile telecommunications market, measure their strength, identify their sources and variability across consumers by accounting for consumers' observable and unobservable preference heterogeneity, evaluate their monetary value to consumers, and finally, to verify if the marginal utility associated with network effects is constant. The analysis of consumers' revealed choices (currently used mobile telephone operator) allowed the identification of major differences between customer bases of incumbent and new entrant operators, and insight into the business strategies adopted in the presence of asymmetric regulation of mobile termination rates. The second part of the study—the analysis of the consumers' stated choices (made in carefully prepared and designed hypothetical choice situations, known as the choice experiments) made it possible to directly model consumers' utility functions and, in this way, investigate the nature of network effects in mobile telecommunications markets. From the results, the presence of strong network effects, which are related to the ratio of consumers' social network group using the same operator, and to the magnitude of on-net price discounts, is confirmed. These network effects can be disaggregated to pecuniary and non-pecuniary effects. Through the utilization of the random parameters multinomial logit model, consumers' observable and unobservable preference heterogeneity can be accounted for, which proved a scientifically revealing and potentially policy-relevant approach. The results might be of a particular interest to other researchers aiming at modeling consumers' preferences as well as to mobile telephone operators and regulatory authorities—it is shown that capacity for vigorous price competition between mobile operators is limited by non-price factors, which affect subscriber's choices, especially in the presence of asymmetric mobile termination rates.

Suggested Citation

  • Sobolewski, Maciej & Czajkowski, MikoŁaj, 2012. "Network effects and preference heterogeneity in the case of mobile telecommunications markets," Telecommunications Policy, Elsevier, vol. 36(3), pages 197-211.
  • Handle: RePEc:eee:telpol:v:36:y:2012:i:3:p:197-211
    DOI: 10.1016/j.telpol.2011.12.005
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    3. Steffen Hoernig & Roman Inderst & Tommaso Valletti, 2014. "Calling circles: network competition with nonuniform calling patterns," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 155-175, March.
    4. Karacuka, Mehmet & Çatık, A. Nazif & Haucap, Justus, 2013. "Consumer choice and local network effects in mobile telecommunications in Turkey," Telecommunications Policy, Elsevier, vol. 37(4), pages 334-344.
    5. Czajkowski, Mikołaj & Sobolewski, Maciej, 2016. "How much do switching costs and local network effects contribute to consumer lock-in in mobile telephony?," Telecommunications Policy, Elsevier, vol. 40(9), pages 855-869.
    6. Kang, Jin-Su & Downing, Stephen, 2015. "Keystone effect on entry into two-sided markets: An analysis of the market entry of WiMAX," Technological Forecasting and Social Change, Elsevier, vol. 94(C), pages 170-186.
    7. Aguilar, Diego & Agüero, Aileen & Barrantes, Roxana, 2020. "Network effects in mobile telecommunications markets: A comparative analysis of consumers' preferences in five Latin American countries," Telecommunications Policy, Elsevier, vol. 44(5).
    8. Van Hove, Leo, 2016. "Testing Metcalfe's law: Pitfalls and possibilities," Information Economics and Policy, Elsevier, vol. 37(C), pages 67-76.
    9. Confraria, João & Ribeiro, Tiago & Vasconcelos, Helder, 2017. "Analysis of consumer preferences for mobile telecom plans using a discrete choice experiment," Telecommunications Policy, Elsevier, vol. 41(3), pages 157-169.

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