A dynamic competition analysis on the Korean mobile phone market using competitive diffusion model

Abstract

The purpose of this paper is to estimate the demand function of mobile phone subscription in Korea, with an explicit consideration of market competition effects, and to empirically clarify the dynamic competitive relationship between the cellular and PCS services. The demand function was estimated using the Lotka-Volterra model, a famous competitive diffusion model. In addition, the characteristics of the dynamic competitive relationship in the Korean mobile phone market are empirically examined, including the existence of an equilibrium point and its stability with the estimated demand function. The results show that competitive relationship in the Korean mobile phone market exhibits a kind of commensalisms, in which the PCS market benefits from the existence of the cellular market, while the number of cellular subscribers is hardly affected by the PCS market. Furthermore, it is shown that the competition between the cellular and PCS services has a dynamic equilibrium point that is partially stable.