Cost shifting in international telephone calls between US and African countries

Abstract

This paper uses a two-equation model, panel data from African countries during the 1992–1996 period and a dynamic panel estimator to investigate cost shifting in international telephone calls between these African countries and the US. Using call minutes as the dependent variable, we find that callers in African countries engage in cost shifting while their US counterparts do not. We also find that while US callers reciprocate call minutes from African countries to the US, callers in Africa do not. Although, the price elasticities of demand are found to be inelastic, African demand elasticity is slightly higher partly due to cost shifting and call reciprocity effects. Our results are robust to different specifications of the model, including the sample size. The results have important policy implications for pricing by international telephone carriers and the US's current international settlement deficits with African countries.