Intra-Household Effects on Demand for Telephone Service: Empirical Evidence

I present a game-theoretical model to estimate consumption demand, accounting for intra-household interaction among household members. Although multiple Nash equilibria of consumption decisions may exist in a household, model parameters are pointwise identified from household-level data for households with only two members. I propose a semiparametric maximum likelihood estimator and apply it to empirically analyze the subscription decision for cellular phone service in Taiwan. On average, a consumer’s probability of subscribing to cellular service rises 35 percentage points when the other household member chooses to subscribe. This result suggests the existence of intrahousehold network effects on cellular phone consumption. The intra-household effect increases in household income, but decreases in the number of kids and the age difference in a household. ∗Department of Economics, National Taiwan University, Taipei, Taiwan. This paper was previously circulated under the title “Intra-Household Consumption Externalities of Cellular Phone Service”. I received helpful comments from Aviv Nevo, Robert Porter, William Rogerson, James Heckman, Chung-Ming Kuan, and Yi-Chi Chen. I have also benefited from comments received from 2007 North American summer meeting of the Econometric Society and 2007 Far Eastern meeting of the Econometric Society. I appreciate the assistance from the Center for Survey Research of Academia Sinica in providing data. Financial supports from the Center for the Study of Industrial Organization at Northwestern University and the National Science Council in Taiwan are gratefully acknowledged. All remaining errors are mine.