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

In addition to the wireless telephone boom, similar exponential increasing trend in wireless data service – short messaging services (SMS) –, is visible, as technology advances. Given these interesting communication trends, we develop a structural model to understand mobile users’ behavior in the individual level consumption of voice and SMS services, allowing for cross-service dependencies. The key issues are the own-price elasticity and the cross-price elasticities of these services. The cross-price elasticity is of significant importance because the marketing activities are critically influenced by whether the goods are substitutes or complements. The research context also poses interesting econometric challenges (One-way and ‘Step’ Nonlinear pricing and Discrete (bundle choice)/continuous quantity model). Using a detailed individual level consumption data, we estimate that there is small substitution effect between voice service and SMS services. We also find that own price elasticity for voice services is relatively small. Younger users are far more inelastic than the older group in four kind of elasticity (ownand cross vs. voice and SMS). This is somewhat counter intuitive and gives some unique insight in understanding mobile service.