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Estimating network effects and compatibility in mobile telecommunications

  • Michal Grajek

    (ESMT European School of Management and Technology)

I develop a structural demand model for mobile telephone service, which facilitates the identification of network effects and compatibility between networks. Network effects are measured by the dependence of consumer willingness to pay on the installed base of subscribers. Compatibility is measured by the relative extent of cross- and own-network effects. I then estimate the model using quarterly panel data from the Polish mobile telephone industry from 1996-2001 and find strong network effects and—despite full interconnection of the mobile telephone networks—low compatibility. I also show that ignoring network effects leads to an overestimation of elasticity of demand.

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Paper provided by ESMT European School of Management and Technology in its series ESMT Research Working Papers with number ESMT-07-001.

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Length: 43 pages
Date of creation: 27 Sep 2007
Date of revision:
Publication status: Published in Information Economics and Policy 22(2): 130–143.
Handle: RePEc:esm:wpaper:esmt-07-001
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