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An Empirical Analysis of Mobile Voice and SMS Service: A Structural Model

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Executive Summary

In addition to wireless telephony boom, a similar exponential increasing trend in wireless data service -for example, Short Message Service (SMS) - is visible as technology advances. The authors develop a structural model to examine user demand for voice and SMS services. Specifically, they measure the own- and the cross-price elasticity of these services. The cross-price elasticity is of significant importance because marketing activities are critically influenced by whether the goods are substitutes or complements. The research context poses significant econometric challenges due to three-part tariffs, and sequential discrete plan choice and continuous quantity choice decisions. Using detailed individual consumption data of more than 6000 customers, the authors find that SMS and voice services are small substitutes.

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