Measuring Network Effects in Mobile Telecommunications Markets with Stated‐Preference Valuation Methods
This paper demonstrates how stated-preference methods can be applied to modeling consumers' preferences in the field of mobile telecommunications, and to measuring and the valuation of network effects. We illustrate this with a case study of mobile phone operators in Poland. We utilize the Choice Experiment method and present the respondents with hypothetical choices of mobile phone operators, while explicitly controlling for network effects in the form of other users in the same network. Based on the hypothetical choices consumers make we construct a conditional random parameters multinomial logit model to analyze their preferences. This approach allows us to calculate welfare effects associated with alternatives, as well as marginal rates of substitution (and hence implicit prices) of the attributes used to describe the choices, such as operator brand and distribution of family and friends between available mobile networks. The latter constitutes a network effect as consumer's utility is influenced by the number (or ratio) of members of his or her family, friends and other users subscribed to the same operator. Our results confirm the existence of a strong network effect, which is related to the size of the social network group a particular subscriber belongs to, rather than the absolute size of the mobile operator's customer base. We observe that there are two sources of this 'gross' network effect - pecuniary (arising from possible price discounts for on-net calls) and non-pecuniary, and demonstrate a way to disaggregate them. In addition, we find that brand perception and brand loyalty are important determinants of operator choice. Finally, through the application of a non-market valuation method we are able to calculate monetary values of the network effect and brand loyalty, and both turn out to be relatively high. The results might be of a particular interest to mobile phone operators and regulatory authorities - we find that the capacity for vigorous price competition between mobile operators is limited due to significant non-price barriers which mitigate subscribers' mobility in the market. We demonstrate a way to measure these effects in monetary terms based on modeling of consumer preferences.
|Date of creation:||2010|
|Contact details of provider:|| Web page: http://www.itseurope.org/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Erik Meijer & Jan Rouwendal, 2006.
"Measuring welfare effects in models with random coefficients,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 21(2), pages 227-244.
- Meijer, E. & Rouwendal, J., 2000. "Measuring welfare effects in models with random coefficients," Research Report 00F25, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
- Kenneth Train, 2003.
"Discrete Choice Methods with Simulation,"
Online economics textbooks,
SUNY-Oswego, Department of Economics, number emetr2.
- Edward Morey & Jennifer Thacher & William Breffle, 2006. "Using Angler Characteristics and Attitudinal Data to Identify Environmental Preference Classes: A Latent-Class Model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 34(1), pages 91-115, 05.
- Christopher R. Knittel & Victor Stango, 2004.
"Compatibility and Pricing with Indirect Network Effects: Evidence from ATMs,"
NBER Working Papers
10774, National Bureau of Economic Research, Inc.
- Christopher Knittel & Victor Stango, 2005. "Compatibility and Pricing with Indirect Network Effects: Evidence from ATMs," Working Papers 525, University of California, Davis, Department of Economics.
- Christopher R. Knittel & Victor Stango, 2003. "Compatibility and pricing with indirect network effects: evidence from ATMs," Working Paper Series WP-03-33, Federal Reserve Bank of Chicago.
- Christos Genakos & Tommaso Valletti, 2007.
"Testing the 'Waterbed' Effect in Mobile Telephony,"
CEP Discussion Papers
dp0827, Centre for Economic Performance, LSE.
- Genakos, Christos D. & Valletti, Tommaso, 2009. "Testing the "Waterbed" Effect in Mobile Telephony," CEPR Discussion Papers 7611, C.E.P.R. Discussion Papers.
- Christos Genakos & Tommaso Valletti, 2007. "Testing the "waterbed" effect in mobile telephony," LSE Research Online Documents on Economics 19680, London School of Economics and Political Science, LSE Library.
- Christos Genakos & Tommaso Valletti, 2008. "Testing the “Waterbed” Effect in Mobile Telephony," CEIS Research Paper 110, Tor Vergata University, CEIS, revised 11 Jul 2008.
- Christopher R. Knittel & Victor Stango, 2006.
"Strategic Incompatibility in ATM Markets,"
06-08, NET Institute, revised Sep 2006.
- Christopher Knittel & Victor Stango, 2006. "Strategic Incompatibility in ATM Markets," Working Papers 629, University of California, Davis, Department of Economics.
- Christopher R. Knittel & Victor Stango, 2006. "Strategic Incompatibility in ATM Markets," NBER Working Papers 12604, National Bureau of Economic Research, Inc.
- John M. Rose & Riccardo Scarpa, 2007.
"Designs Efficiency for Non-market Valuation with Choice Modelling: How to Measure It, What to Report and Why,"
Working Papers in Economics
07/21, University of Waikato, Department of Economics.
- Scarpa, Riccardo & Rose, John M., 2008. "Design efficiency for non-market valuation with choice modelling: how to measure it, what to report and why," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(3), pages -, September.
- Riccardo Scarpa & John M. Rose, 2008. "Design efficiency for non-market valuation with choice modelling: how to measure it, what to report and why ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(3), pages 253-282, 09.
- Hole, Arne Risa, 2008.
"Modelling heterogeneity in patients' preferences for the attributes of a general practitioner appointment,"
Journal of Health Economics,
Elsevier, vol. 27(4), pages 1078-1094, July.
- Arne Risa Hole, 2007. "Modelling Heterogeneity in Patients' Preferences for the Attributes of a General Practitioner Appointment," Working Papers 022cherp, Centre for Health Economics, University of York.
- Brock, William A. & Durlauf, Steven N., 2007.
"Identification of binary choice models with social interactions,"
Journal of Econometrics,
Elsevier, vol. 140(1), pages 52-75, September.
- Brock,W.A. & Durlauf,S.N., 2004. "Identification of binary choice models with social interactions," Working papers 2, Wisconsin Madison - Social Systems.
- Michal Grajek, 2007.
"Estimating network effects and compatibility in mobile telecommunications,"
ESMT Research Working Papers
ESMT-07-001, ESMT European School of Management and Technology.
- Michal Grajek, 2003. "Estimating Network Effects and Compatibility in Mobile Telecommunications," CIG Working Papers SP II 2003-26, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Liikanen, Jukka & Stoneman, Paul & Toivanen, Otto, 2004. "Intergenerational effects in the diffusion of new technology: the case of mobile phones," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1137-1154, November.
- Train, K. & Weeks, M., 2004. "Discrete Choice Models in Preference Space and Willingness-to Pay Space," Cambridge Working Papers in Economics 0443, Faculty of Economics, University of Cambridge.
- Carson, Richard T & Flores, Nicholas A, 2000.
"Contingent Valuation: Controversies and Evidence,"
University of California at San Diego, Economics Working Paper Series
qt75k752s7, Department of Economics, UC San Diego.
- Laitila, Thomas, 2004. "Economic Valuation with Stated Preference Techniques: A Manual: Bateman, I.J., R.T. Carson, B. Day, M. Hanemann, N. Hanley, T. Hett, M. Jones-Lee, G. Loomes, S. Mourato, E. Ozdemiroglu, D.W. Pearce, R," Ecological Economics, Elsevier, vol. 50(1-2), pages 155-156, September.
- David Dranove & Neil Gandal, 2003. "The Dvd-vs.-Divx Standard War: Empirical Evidence of Network Effects and Preannouncement Effects," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(3), pages 363-386, 09.
- Nick Hanley & Robert Wright & Vic Adamowicz, 1998. "Using Choice Experiments to Value the Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(3), pages 413-428, April.
- Colombo, Sergio & Calatrava-Requena, Javier & Conzalex-Roa, M.C., 2005. "Testing Choice Experiment for Benefit Transfer," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24747, European Association of Agricultural Economists.
- Stephen Hynes & Nick Hanley & Riccardo Scarpa, 2008. "Effects on Welfare Measures of Alternative Means of Accounting for Preference Heterogeneity in Recreational Demand Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(4), pages 1011-1027.
When requesting a correction, please mention this item's handle: RePEc:zbw:itse10:5. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.