A Dyad Model of Calling Behavior with Tie Strength Dynamics

In this study, we investigate the effect of social networks on wireless phone service consumption. We argue that, unlike other products and services, phone calls require two parties to jointly and simultaneously consume. As both parties pay the fees for communication, and as phone calls are a way of strengthening a relationship, the calling activity between two parties can be viewed as the optimal outcome of a cooperative decision. Using a large wireless telecommunication dataset, we estimate a dynamic model that encapsulates the evolving relationship between pairs of consumers. We find that the number of calls and the call duration between a pair of consumers are positively affected by the number of their common contacts. We also find that the reciprocity effect is prevalent in telecoms consumption. Calling is a two-way street – the more one calls the other, the stronger the relationship becomes and, subsequently, the more the other will call back. We demonstrate the importance of accounting for these effects when assessing the returns on temporary call price cuts or the implications of new pricing schemes.