Estimating network effects and compatibility in mobile telecommunications

Arbeitspapier

This paper provides empirical evidence on the extent of network effects and compatibility between networks in mobile telecommunications. We specify a structural model of demand for mobile telephone service, which allows us to identify the parameters of interest from the S-shape of mobile service diffusion. The 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. As such, it indicates whether the network effects operate at the firm level, at the industry level, or at both. We then estimate this model for the Polish mobile telephone industry using quarterly panel data for the period 1996-2001. We find strong network effects, which give rise to upward-sloping demand, and, despite full interconnection of the mobile telephone networks, low compatibility. We show also that ignoring network effects in empirical models of emerging network industries might substantially bias downward the estimated price elasticity of demand.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WZB Discussion Paper ; No. SP II 2003-26

Classification and Topics

• Classification: Wirtschaft ; Model Construction and Estimation ; Consumer Economics: Empirical Analysis ; Telecommunications
• Subject: Structural Econometric Model ; Network Effects ; Compatibility ; Mobile Telecommunications

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Grajek, Michal
• Event: Veröffentlichung
• (who): Wissenschaftszentrum Berlin für Sozialforschung (WZB)
• (where): Berlin
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/51004
• Last update: 10.03.2025, 11:44 AM CET