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Crowding Out or Complementarity in the Telecommunications Market?

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Abstract

There is a substantial number of cases where the a priori relationship between products is not at all clear in the sense that although apparent to be clear substitutes may turn out to be in fact complements, or vice-versa. This paper aims to study the relationship between fixed and mobile telephony in the United Kingdom and, in particular, address the question if mobile communications crowded out fixed telephony or if, on the other hand, the two types of communications are in fact complements. We estimate a structural continuous-choice demand model following Pinkse et al. (2002), Pinkse and Slade (2004), and Slade (2004) and we find that at the current diffusion stage, fixed and mobile communications appear to be complements. Given that the model is micro-founded, we also address the question of how the evolution of the price differential between the two types of communication may, respectively, affect the welfare of consumers and firms. We find that the continuation of these price trends have substantial welfare benefits for subscribers and at the same time have no significant impact on the profits for firms. Finally, we present some economic policy implications, especially about the need to (de)regulate telecommunications provision.

Suggested Citation

  • Ricardo Ribeiro & João Vareda, 2007. "Crowding Out or Complementarity in the Telecommunications Market?," Working Papers 07-33, NET Institute, revised Sep 2007.
  • Handle: RePEc:net:wpaper:0733
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    References listed on IDEAS

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    Cited by:

    1. Juan Vélez, 2017. "Merger Effects with Product Complementarity: Evidence from Colombia’s Telecommunications," Borradores de Economia 1018, Banco de la Republica de Colombia.

    More about this item

    Keywords

    Telecommunications; Mobile; Fixed; Demand; Substitution; Complementarity;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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