Intra-household effects on demand for telephone service: Empirical evidence

Knowing the determinants of consumption decisions is important for targeted marketing. This paper proposes a method to study household adoption of network goods. I empirically investigate the factors which affect the interactions among household members in the choice of telephone service using a game-theoretical model. The proposed semiparametric maximum likelihood estimator accounts for potential multiple Nash equilibria. I apply the method to study the subscription decisions for cellular phone service in Taiwan. On average, a consumer’s probability of subscribing to cellular service rises 13 percentage points when the other household member chooses to subscribe, suggesting the existence of intra-household network effects. Moreover, the intra-household effect is heterogeneous among households. It increases in household income, but decreases in the number of children and the age difference within a household. Firms can substantially increase the effectiveness of a marketing strategy by targeting on the observed consumer characteristics.