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Mobile telephony and internet growth: impacts on consumer welfare

Author

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  • Madden, Gary G
  • Schipp, Michael
  • Tan, Joachim

Abstract

Innovation in digital technology has allowed rapid growth in mobile telephone and Internet adoption among consumers. The implication underlying the high rates of subscription growth is that consumers generally place a high valuation on telecommunication services. Moreover, since mobile telephone and Internet are predominantly telecommunication services, it is reasonable to presume that the network effect may be largely responsible for this growth. The implication of the network effect, where the consumer’s valuation of service increases with the size of the network is that subscription growth is endogenous. However, to date there have been few attempts to measure the change in consumer welfare as networks increase. Following Hausman (1981), this paper measures the change in consumer surplus based on the compensating variations approach. The result is an annual measure of the change in consumer surplus for the representative consumer for the OECD region. In addition, the approach reveals whether marginal consumer surplus is a decreasing or increasing function of network size. Measurement of the change in consumer welfare thus provides an additional tool for public policy analysis.

Suggested Citation

  • Madden, Gary G & Schipp, Michael & Tan, Joachim, 2007. "Mobile telephony and internet growth: impacts on consumer welfare," MPRA Paper 14555, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:14555
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    File URL: https://mpra.ub.uni-muenchen.de/14555/1/MPRA_paper_14555.pdf
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    References listed on IDEAS

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    Cited by:

    1. Van Hove, Leo, 2018. "Quantifying and interpreting network effects: ‘Own-network’ is not the same as ‘firm-level’," Information Economics and Policy, Elsevier, vol. 45(C), pages 47-51.
    2. Jasmin Wehner & Xiaohua Yu, 2023. "Carbon tax on milk products and the exact consumer welfare measure in emerging economies," Agribusiness, John Wiley & Sons, Ltd., vol. 39(S1), pages 1595-1623, December.

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    More about this item

    Keywords

    Consumer welfare; network effect; compensating variation;
    All these keywords.

    JEL classification:

    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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