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On the Distance Dependence of the Price Elasticity of Telecommunications Demand; Meta-analysis, and Alternative Theoretical Backgrounds

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  • Hans Ouwersloot
  • Piet Rietveld

    () (Vrije Universiteit Amsterdam)

Abstract

The positive correlation between the absolute price elasticity of telecommunications demand and the distance of the calling relation is well known. In this paper we first present a meta-analysis of existing studies to buttress the distance dependence empirically. The analysis confirms the existence of distance dependence, and gives insight into the size of the effect.Next we look for various explanations of the distance dependence. We analyse the roles of the functional form of demand functions in conjunction with the dependence of price on distance, and consider whether spatial interaction theory can provide an explanation. One of the interesting findings isthat the price effect may explain the distance dependence, but that this explanation is not unequivocal. On the other hand we show that incorporating spatial interaction theory elements in a quite basic utility maximization model of information demand also leads to distance dependent telecommunicationsdemand (keeping prices of calling fixed).

Suggested Citation

  • Hans Ouwersloot & Piet Rietveld, 1997. "On the Distance Dependence of the Price Elasticity of Telecommunications Demand; Meta-analysis, and Alternative Theoretical Backgrounds," Tinbergen Institute Discussion Papers 97-080/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:19970080
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    1. A. Rodney Dobell & Lester D. Taylor & Leonard Waverman & Tsuang-Hua Liu & Michael D. G. Copeland, 1972. "Telephone Communications in Canada: Demand, Production, and Investment Decisions," Bell Journal of Economics, The RAND Corporation, vol. 3(1), pages 175-219, Spring.
    2. Rea, John D & Lage, Gerald M, 1978. "Estimates of Demand Elasticities for International Telecommunications Services," Journal of Industrial Economics, Wiley Blackwell, vol. 26(4), pages 363-381, June.
    3. Madden, Gary & Bloch, Harry & Hensher, David, 1993. "Australian telephone network subscription and calling demands: evidence from a stated-preference experiment," Information Economics and Policy, Elsevier, vol. 5(3), pages 207-230, October.
    4. B.E. Davis & G.J. Caccappolo & M.A. Chaudry, 1973. "An Econometric Planning Model for American Telephone and Telegraph Company," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 29-56, Spring.
    5. Hackl, Peter & Westlund, Anders H., 1995. "On price elasticities of international telecommunication demand," Information Economics and Policy, Elsevier, vol. 7(1), pages 27-36, April.
    6. Duncan, Gregory M. & Perry, Donald M., 1994. "IntraLATA toll demand modeling: a dynamic analysis of revenue and usage data," Information Economics and Policy, Elsevier, vol. 6(2), pages 163-178, July.
    7. Acton, Jan Paul & Vogelsang, Ingo, 1992. "Telephone Demand over the Atlantic: Evidence from Country-Pair Data," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 305-323, September.
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    Cited by:

    1. Gianni De Fraja & Fabio M. Manenti, "undated". "How Long Is A Piece Of Wire? Equilibrium Determination Of Local Telephone Areas," Discussion Papers 00/03, Department of Economics, University of York.

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