IDEAS home Printed from https://ideas.repec.org/a/eee/iepoli/v22y2010i1p18-32.html
   My bibliography  Save this article

The effect of prices on fixed and mobile telephone penetration: Using price subsidies as natural experiments

Author

Listed:
  • Ward, Michael R.
  • Woroch, Glenn A.

Abstract

A natural experiment, unintentionally conducted by the price subsidy program Lifeline Assistance, underpins our innovative strategy to estimate consumer demand for communications services. Using a national household panel containing demographic and billing information, we estimate own and cross-elasticities of demand for fixed and mobile services and find moderate substitution between the two. We control for the role of income effects by showing the subsidy has little effect on consumption of similar products and services. To account for potential bias due to endogeneity of program participation, a difference-in-differences analysis of re-sampled households results in estimates similar to the cross-sectional analysis. An asymmetry in the response to Lifeline participation arose depending on whether a household added or dropped Lifeline between samplings. We use the estimated demand parameters to simulate the impact of making the Lifeline program universal, or eliminating it altogether. In either case we find the net impact on combined fixed and mobile penetration is small.

Suggested Citation

  • Ward, Michael R. & Woroch, Glenn A., 2010. "The effect of prices on fixed and mobile telephone penetration: Using price subsidies as natural experiments," Information Economics and Policy, Elsevier, vol. 22(1), pages 18-32, March.
    • Handle: RePEc:eee:iepoli:v:22:y:2010:i:1:p:18-32
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167-6245(09)00072-9
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Vogelsang, Ingo, 2010. "The relationship between mobile and fixed-line communications: A survey," Information Economics and Policy, Elsevier, vol. 22(1), pages 4-17, March.
    2. Nakil Sung & Yong-Hun Lee, 2002. "Substitution between Mobile and Fixed Telephones in Korea," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 20(4), pages 367-374, June.
    3. Hausman, Jerry, 2000. "Efficiency Effects on the U.S. Economy from Wireless Taxation," National Tax Journal, National Tax Association, vol. 53(n. 3), pages 733-42, September.
    4. Rodini, Mark & Ward, Michael R. & Woroch, Glenn A., 0. "Going mobile: substitutability between fixed and mobile access," Telecommunications Policy, Elsevier, vol. 27(5-6), pages 457-476, June.
    5. Jerry A. Hausman, 1997. "Valuing the Effect of Regulation on New Services in Telecommunications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1997 Micr), pages 1-54.
    6. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    7. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, September.
    8. Hausman, Jerry, 2000. "Efficiency Effects on the U.S. Economy From Wireless Taxation," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(3), pages 733-742, September.
    9. Burton Mark & Macher Jeffrey & Mayo John W, 2007. "Understanding Participation in Social Programs: Why Don't Households Pick up the Lifeline?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-28, November.
    10. Eriksson, Ross C & Kaserman, David L & Mayo, John W, 1998. "Targeted and Untargeted Subsidy Schemes: Evidence from Postdivestiture Efforts to Promote Universal Telephone Service," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 477-502, October.
    11. Besley, Timothy & Case, Anne, 2000. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," Economic Journal, Royal Economic Society, vol. 110(467), pages 672-694, November.
    12. Garbacz, Christopher & Thompson, Herbert G, Jr, 1997. "Assessing the Impact of FCC Lifeline and Link-Up Programs on Telephone Penetration," Journal of Regulatory Economics, Springer, vol. 11(1), pages 67-78, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kummer, Michael & Schulte, Patrick, 2014. "Money and privacy: Android market evidence," ZEW Discussion Papers 14-131, ZEW - Leibniz Centre for European Economic Research.
    2. Lange, Mirjam R.J. & Saric, Amela, 2016. "Substitution between fixed, mobile, and voice over IP telephony – Evidence from the European Union," Telecommunications Policy, Elsevier, vol. 40(10), pages 1007-1019.
    3. Jeffrey T. Macher & John W. Mayo & Olga Ukhaneva & Glenn A. Woroch, 2017. "From universal service to universal connectivity," Journal of Regulatory Economics, Springer, vol. 52(1), pages 77-104, August.
    4. Mirjam R. J. Lange, 2017. "Tariff diversity and competition policy: drivers for broadband adoption in the European Union," Journal of Regulatory Economics, Springer, vol. 52(3), pages 285-312, December.
    5. Lukasz Grzybowski & Frank Verboven, 2016. "Substitution between fixed-line and mobile access: the role of complementarities," Journal of Regulatory Economics, Springer, vol. 49(2), pages 113-151, April.
    6. Lukasz Grzybowski & Frank Verboven, 2013. "Substitution and Complementarity between Fixed-line and Mobile Access," Working Papers 13-09, NET Institute.
    7. Rabbani, Maysam, 2024. "Dollars and megabits: A comparative analysis of Telecom and Healthcare Connect Fund," Information Economics and Policy, Elsevier, vol. 67(C).
    8. Hoernig, Steffen & Bourreau, Marc & Cambini, Carlo, 2015. "Fixed-mobile substitution and termination rates," Telecommunications Policy, Elsevier, vol. 39(1), pages 65-76.
    9. Balmer, Roberto E., 2014. "Competition and market strategies in the Swiss fixed telephony market," 20th ITS Biennial Conference, Rio de Janeiro 2014: The Net and the Internet - Emerging Markets and Policies 106837, International Telecommunications Society (ITS).
    10. Glenn A. Woroch, 2020. "Spectrum Concentration and Performance of the U.S. Wireless Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(1), pages 73-105, February.
    11. Šaric, Amela & Lange, Mirjam R. J., 2014. "Deregulating fixed voice services? Empirical evidence from the European Union," 25th European Regional ITS Conference, Brussels 2014 101385, International Telecommunications Society (ITS).
    12. Balmer, Roberto, 2013. "Competition and Market Strategies in the Swiss Fixed Telephony Market. An estimation of Swisscom’s dynamic residual demand curve," MPRA Paper 54078, University Library of Munich, Germany.
    13. Wolfgang Briglauer & Anton Schwarz & Christine Zulehner, 2011. "Is fixed-mobile substitution strong enough to de-regulate fixed voice telephony? Evidence from the Austrian markets," Journal of Regulatory Economics, Springer, vol. 39(1), pages 50-67, February.
    14. Barth, Anne-Kathrin & Heimeshoff, Ulrich, 2012. "How large is the magnitude of fixed-mobile call substitution? Empirical evidence from 16 European countries," DICE Discussion Papers 49, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    15. Barth, Anne-Kathrin & Heimeshoff, Ulrich, 2011. "Does the growth of mobile markets cause the demise of fixed networks? Evidence from the European Union," 22nd European Regional ITS Conference, Budapest 2011: Innovative ICT Applications - Emerging Regulatory, Economic and Policy Issues 52144, International Telecommunications Society (ITS).
    16. Suárez, David & García-Mariñoso, Begoña, 2013. "Which are the drivers of fixed to mobile telephone access substitution? An empirical study of the Spanish residential market," Telecommunications Policy, Elsevier, vol. 37(4), pages 282-291.
    17. Jiao Xu & Chris Forman & Yu Jeffrey Hu, 2019. "Battle of the Internet Channels: How Do Mobile and Fixed-Line Quality Drive Internet Use?," Service Science, INFORMS, vol. 30(1), pages 65-80, March.
    18. Rudra P. Pradhan & Mak B. Arvin & John H. Hall & Sara E. Bennett, 2018. "Mobile telephony, economic growth, financial development, foreign direct investment, and imports of ICT goods: the case of the G-20 countries," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 45(2), pages 279-310, June.
    19. Thomas S. Conkling, 2020. "Compliance and competition with heterogeneous service providers: the federal Lifeline program," Journal of Regulatory Economics, Springer, vol. 57(1), pages 74-104, February.
    20. Nakamura, Akihiro, 2013. "Retaining telecommunication services when universal service is defined by functionality: Japanese consumers' willingness-to-pay," Telecommunications Policy, Elsevier, vol. 37(8), pages 662-672.
    21. Jinsoo Bae & Yun Jeong Choi & Jong-Hee Hahn, 2014. "Fixed and mobile broadband; Are they substitutes or complements?," Working papers 2014rwp-68, Yonsei University, Yonsei Economics Research Institute.
    22. Ezzat Riham Ahmed, 2017. "Fixed-Mobile Substitution in MENA Countries: The Future of Fixed-Line Markets," Review of Network Economics, De Gruyter, vol. 16(4), pages 387-417, December.
    23. Aron Debra J. & Ingraham Allan T., 2012. "The Effects of Legacy Pricing Regulation on Adoption of Broadband Service in the United States," Review of Network Economics, De Gruyter, vol. 11(4), pages 1-38, December.
    24. Thomas S. Conkling, 2018. "Crowd‐Out or Affordability? The Lifeline Expansion's Effect on Wireless Service Spending," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 37(2), pages 357-383, March.
    25. Ward, Michael R. & Zheng, Shilin, 2012. "Mobile and fixed substitution for telephone service in China," Telecommunications Policy, Elsevier, vol. 36(4), pages 301-310.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ward, Michael R. & Zheng, Shilin, 2012. "Mobile and fixed substitution for telephone service in China," Telecommunications Policy, Elsevier, vol. 36(4), pages 301-310.
    2. Garbacz, Christopher & Thompson, Herbert Jr., 2005. "Universal telecommunication service: A world perspective," Information Economics and Policy, Elsevier, vol. 17(4), pages 495-512, October.
    3. Hauge, Janice A. & Jamison, Mark A. & Todd Jewell, R., 2008. "Discounting telephone service: An examination of participation in the Lifeline Assistance Program using panel data," Information Economics and Policy, Elsevier, vol. 20(2), pages 135-149, June.
    4. Jinsoo Bae & Yun Jeong Choi & Jong-Hee Hahn, 2014. "Fixed and mobile broadband; Are they substitutes or complements?," Working papers 2014rwp-68, Yonsei University, Yonsei Economics Research Institute.
    5. Jayakar, Krishna & Park, Eun-A, 2019. "Reforming the lifeline program: Regulatory federalism in action?," Telecommunications Policy, Elsevier, vol. 43(1), pages 67-75.
    6. Ford, George S., 2021. "Subsidies and substitution: An empirical study of the lifeline program," Telecommunications Policy, Elsevier, vol. 45(1).
    7. Holt, Lynne & Galligan, Mary, 2013. "Mapping the field: Retrospective of the federal universal service programs," Telecommunications Policy, Elsevier, vol. 37(9), pages 773-793.
    8. Hongjai Rhee & Minsoo Park, 2011. "Fixed-to-mobile call substitution and telephony market definition in Korea," Journal of Regulatory Economics, Springer, vol. 40(2), pages 198-218, October.
    9. Vogelsang, Ingo, 2010. "The relationship between mobile and fixed-line communications: A survey," Information Economics and Policy, Elsevier, vol. 22(1), pages 4-17, March.
    10. Thomas S. Conkling, 2020. "Compliance and competition with heterogeneous service providers: the federal Lifeline program," Journal of Regulatory Economics, Springer, vol. 57(1), pages 74-104, February.
    11. Ghosh, Saibal, 2016. "Does mobile telephony spur growth? Evidence from Indian states," Telecommunications Policy, Elsevier, vol. 40(10), pages 1020-1031.
    12. Bölcskei, Vanda, 2010. "A távbeszélő-szolgáltatások keresleti modelljeinek áttekintése - különös tekintettel a vezetékes és mobilszolgáltatások közötti helyettesítés becslésére [A review of the demand models of telephone ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 517-535.
    13. Maarten A. Allers & Corine Hoeben, 2010. "Effects of Unit-Based Garbage Pricing: A Differences-in-Differences Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 45(3), pages 405-428, March.
    14. Grzybowski, Lukasz, 2014. "Fixed-to-mobile substitution in the European Union," Telecommunications Policy, Elsevier, vol. 38(7), pages 601-612.
    15. Björkegren, Daniel & Karaca, Burak Ceyhun, 2022. "Network adoption subsidies: A digital evaluation of a rural mobile phone program in Rwanda," Journal of Development Economics, Elsevier, vol. 154(C).
    16. Alan de Brauw & John Giles, 2017. "Migrant Opportunity and the Educational Attainment of Youth in Rural China," Journal of Human Resources, University of Wisconsin Press, vol. 52(1), pages 272-311.
    17. Ziebarth, Nicolas R. & Karlsson, Martin, 2010. "A natural experiment on sick pay cuts, sickness absence, and labor costs," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 1108-1122, December.
    18. Spiegel, Mark M., 2009. "Monetary and financial integration: Evidence from the EMU," Journal of the Japanese and International Economies, Elsevier, vol. 23(2), pages 114-130, June.
    19. Christos Genakos & Tommaso Valletti, 2011. "Testing The “Waterbed” Effect In Mobile Telephony," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1114-1142, December.
    20. Resce, Giuliano, 2022. "The impact of political and non-political officials on the financial management of local governments," Journal of Policy Modeling, Elsevier, vol. 44(5), pages 943-962.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:iepoli:v:22:y:2010:i:1:p:18-32. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505549 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.