Lukasz Grzybowski

Estimating network effects in mobile telephony in Germany

In this paper we analyze the demand for mobile telecommunication services in Germany in the period from January 1998 to June 2003. During this time, the subscriber base grew exponentially by about 700% while prices declined only moderately by about 41%. We believe that prices alone cannot account for such rapid diffusion and network effects have influenced the evolution of the industry. We put this view to the test by using publicly available data on subscriptions, price indices and churn rates. Using churn rates gave us approximate sales levels which enabled us to use standard methods to investigate the effect of network size on demands. Our estimates of a system of demand functions show that network effects played a significant role in the diffusion of mobile services in Germany.

Subscription Choices and Switching Costs in Mobile Telephony

In this article, we estimate the price elasticities of demand for subscription and consumer switching costs for mobile telephony. We use a panel data of Portuguese consumers to estimate a series of multinomial and mixed logit models. The demand for subscription is found to be elastic and switching costs are large. We use the structural model to perform several policy exercises. Switching costs and brand preferences are shown to be important elements of the market structure of mobile telephony. Price mediated network effects seem to be relatively less important.

The complementarity between calls and messages in mobile telephony

This article estimates the price elasticities of the demand for mobile telephone calls and the demand for messages for Portugal. We use a panel of individual level data. In order to account for the unobserved individual heterogeneity and for the data censoring, we estimate a Tobit model for panel data with individual random effects. The demand for calls and the demand for messages are inelastic. Calls and messages are complements.

Dynamic Duopoly Competition with Switching Costs and Network Externalities

This paper analyzes competition in a two-period differentiated-products duopoly in the presence of both switching costs and network effects. We show that they have opposite implications on the demand side, specially in the first period. Switching costs reduce demand elasticities and network effects increase them. We derive the symmetric subgame perfect equilibrium outcome of the two-period competition. An increase in marginal network benefits implies lower prices in both periods while the effect of an increase switching costs is ambiguous. We show that the first-period equilibrium prices are U-shaped in switching costs and decrease when switching costs increase around zero. Furthermore, we show that prices in a market with network effects and switching costs may be lower than those in a market without these features, with only switching costs and with only network effects.

Substitution between fixed-line and mobile access: the role of complementarities

We study substitution from fixed-line to mobile voice access, and the role of various complementarities that may influence this process.We use rich survey data on 160,363 households from 27 EU countries during 2005-2012. We estimate a discrete choice model where households may choose one or both technologies, possibly in combination with internet access. We obtain the following main findings. First, there is significant fixed-to mobile substitution, especially in recent years: without mobile telephony, fixed-line penetration would have been 14% higher in 2012. But there is substantial heterogeneity across households and EU regions, with a stronger substitution in Central and Eastern European countries. Second, the decline in fixed telephony has been slowed down because of a significant complementarity between fixed-line and mobile connections offered by the fixed-line incumbent operator. This gives the incumbent a possibility to maintain to some extent its position in the fixed-line market, and to leverage it into the mobile market. Third, the decline in fixed telephony has been slowed down because of the complementarity with broadband internet: the introduction of DSL avoided an additional decline in fixed-line penetration of almost 9% in 2012. The emergence of fixed broadband has thus been the main source through which incumbents maintain their strong position in the fixed-line network.

Market definition for broadband internet in Slovakia – Are fixed and mobile technologies in the same market?☆

This paper uses a rich survey of 6446 households in Slovakia to estimate price elasticities of demand for Internet access, and draw implications for market definition. We estimate a mixed logit model, in which households choose between different broadband technologies: DSL, cable modem, fibre, WiFi and mobile. We find that a number of household characteristics influence the technology choices, and there is also significant unobserved heterogeneity. Demand for Internet access is highly price sensitive. The price elasticity of demand for DSL is −3.02, which falls in the middle of the range of elasticities for the other technologies. Furthermore, the price elasticity of demand at the level of all fixed broadband technologies (DSL+cable modem+fibre+WiFi) is equal to −1.98. For a reasonable range of profit margins, this estimate implies that mobile broadband should be included in the relevant antitrust market of fixed broadband. Our findings have implications for competition policy in Central and Eastern European countries where due to poor copper networks mobile broadband is an important alternative to fixed broadband.

Competition in Mobile Telephony in France and Germany

This paper analyses the development of mobile telephony in France and Germany in 1998–2002. We conduct this analysis in relation to the antitrust investigation initiated by the French competition authority in 2002 due to exchange of strategic information and a share-fixing agreement between network operators. The results suggest a significant difference between price elasticities of demand in these two countries. Moreover, consumers perceive mobile telephony as a substitute for fixed-line connection in France and as a complement in Germany. In the time period of the share-fixing agreement among French network operators there were no adverse shifts in the levels of prices and subscriptions.

Merger Simulation in Mobile Telephony in Portugal

This article assesses the unilateral effects on prices of a merger in the Portuguese mobile telephony market. We use aggregate quarterly data from 1999 to 2005 and a nested logit model to estimate the price elasticities of demand and the marginal costs of subscription of mobile telephony. Given these estimates, we simulate the effects of the merger. We find that the available mobile telephony subscription products are close substitutes. The merger may cause substantial price increases, even in the presence of large cost efficiencies. On average, prices increase by 7–10% without cost efficiencies, and by about 6–10% with a 10% marginal cost reduction.

Estimating demand for fixed-mobile bundles and switching costs between tariffs

This paper estimates demand for fixed-mobile bundles (quadruple play tariffs) using a database of subscribers to a single mobile operator from a single town in a European country which has full coverage with both ADSL and FTTH broadband technologies. Based on the mixed logit demand estimation we find that consumer valuation of FTTH broadband in 2013 increased over time, while ADSL lost attractiveness relative to FTTH and in absolute terms, which suggests that consumers increasingly care about the speed of connection offered by FTTH. Consumer surplus increased substantially due to ongoing transition of consumers from less valued quadruple play tariffs with ADSL to more valued ones with FTTH. We also find that for quadruple play subscribers mobile data is complementary to fixed broadband access, which suggests that these consumers use Internet access via mobile data to sample online content but complete their online activity using fixed Internet access at home. On the other hand, mobile voice usage is a substitute to fixed broadband access and consumers reduce their voice consumption once they get a broadband connection. We also find that there are substantial switching costs between tariffs which, other things being equal, greatly decrease consumer surplus.

Infrastructure deficiencies and adoption of mobile money in Sub-Saharan Africa

We use survey data conducted in 11 countries in Sub-Saharan Africa in 2011 to analyze how the availability of physical infrastructure influences adoption of mobile phones and usage of mobile services. The availability of physical service infrastructure is approximated by data on nighttime light intensity in the areas in which survey respondents reside. After controlling for a number of individual and household characteristics including disposable income, we find that adoption of mobile phones is higher in areas with better physical infrastructure. However, mobile phone users who live in areas with poor infrastructure are more likely to rely on mobile phones to make financial transactions than individuals living in areas with better infrastructure. On the other hand, the use of mobile phones to access services such as email, skype, social media networks and Internet browsing is not dependent on the availability of physical infrastructure. Our results support the notion that mobile phones improve the livelihood of individuals residing in remote areas by providing them with access to financial services which are otherwise not available physically.