Estimating network effects in mobile telephony in Germany

Official URL: http://dx.doi.org/10.1016/j.infoecopol.2006.11.001

In this paper we analyze the demand for mobile telecommunication services in Germany in the period from January 1998 to June 2003. During this time, the subscriber base grew exponentially by about 700% while prices declined only moderately by about 41%. We believe that prices alone cannot account for such rapid diusion and network eects have inuenced the evolution of the industry. We put this view to the test by using publicly available data on subscriptions, price indices and churn rates. Using churn rates gave us approximate sales levels which enabled us to use standard methods to investigate the eect of network size on demands. Our estimates of a system of demand functions show that network eects played a signicant role in the diusion of mobile services in Germany.