Telephony choices and the evolution of cell phones
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Since cell phones were introduced commercially in 1983, virtually all consumers have adopted cell phones. In this paper, we examine the effect of this new product on telephony demand and its evolution in the market using the Consumer Expenditure Survey from 1994 to 2012. This represents a period much longer than previous studies and over which most cell phone adoptions took place. We develop and estimate a model of household choice of telephony options using a mixed logit as a function of consumer characteristics, unobserved alternative-specific attributes, and prices over time. Unlike previous research, our focus is on the evolution of demand and choices made by households. To illustrate the evolution, we construct market segments and track adoptions over time by market segment, allowing for an assessment of whether cell phones are substitutes or complements for landlines. The evidence suggests that the move to cellular telephone services is driven by young households and by households with larger families. We then develop and apply a decomposition of substitutability and find significant evidence that substitutability differs through time and by market segment.
KeywordsTelephone Cellular Landline Consumer adoption Evolution Choice
Mathematics Subject ClassificationL96 D12
The authors gratefully acknowledge discussions with and comments of Jeremy Piger, Glen Waddell, Mark Burton, John Mayo, James Alleman and three anonymous referees as well as participants from the Transportation and Public Utilities Group meetings at the Western Economic Association Meetings and the Allied Social Science Assocation as well as participants in the University of Oregon Microeconomics Graduate Association. This work originally emanated from a group of undergraduate students who provided a lot of the background material and initial data work. We are very grateful for the contributions of Johnathan Thomas, Jon Akashi, Jason Stieber, and Ryan Churchill.
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