Demand in a Portfolio-Choice Environment: The Evolution of Telecommunications

Abstract

The introduction of a new good (or service) often creates situations in which consumers may choose to consume an extant good, a new good, both goods, or neither. Understanding the evolution and determinants of consumer demand in these situations can be quite important to economic policy formation, and especially so in network industries experiencing the entry of new services. In this study, we draw upon a database of over 180,000 individual household choices of fixed and/or mobile telephone subscriptions over 2003–2010 to improve insight into both the structure and evolution of consumer demand in such portfolio-choice settings. Congruent with our underlying consumer utility model, we find that cellphone service complements household member mobility: Households that are more often “on the go” favor mobile services. We also find the presence of network effects that impact the demand for mobile telephone services. Finally, we find that own- and cross-price elasticities of fixed and mobile telephony services demonstrate marked differences among demographic groups and across income levels.