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Using the Hicks formula to evaluate an estimate of the elasticity of derived demand for toll-free numbers

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  • Parsons, Steve G.

Abstract

Duffy-Deno & Parsons D-D & P (2012) estimated the coefficient for the price elasticity of demand for toll-free numbers (TFNs) at between −0.04 and −0.05. Here, the Hicks formula for derived demand is used to check the range of likely demand elasticity for TFNs given the special characteristics of this market. This approach suggests that the demand for TFNs is likely not more elastic than estimated by D-D & P. Therefore, the premise is sound for D-D & P's discussion of the public policy implications of highly inelastic demand for TFNs. The use of industry information for all four parameters of the Hicks formula to check a derived demand elasticity is the first of its kind in the published literature.

Suggested Citation

  • Parsons, Steve G., 2014. "Using the Hicks formula to evaluate an estimate of the elasticity of derived demand for toll-free numbers," Telecommunications Policy, Elsevier, vol. 38(2), pages 210-215.
    • Handle: RePEc:eee:telpol:v:38:y:2014:i:2:p:210-215
    DOI: 10.1016/j.telpol.2013.07.002
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    References listed on IDEAS

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    1. M. Bronfenbrenner, 1961. "Notes On The Elasticity Of Derived Demand," Oxford Economic Papers, Oxford University Press, vol. 13(3), pages 254-261.
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    6. Duffy-Deno, Kevin T. & Parsons, Steve G., 2012. "Toll-free numbers: Demand, property rights, and public policy," Telecommunications Policy, Elsevier, vol. 36(4), pages 324-334.
    7. Razin, Assaf, 1974. "A Note on the Elasticity of Derived Demand Under Decreasing Returns," American Economic Review, American Economic Association, vol. 64(4), pages 697-700, September.
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