Effects of capacity constraint on US–African telephone traffic

Abstract

This paper investigates the effects of capacity constraint on demand for international telephone calls between the US and African countries, using 1992–96 data. We find that capacity constraints in African countries have negative effects on both the volume and the duration of telephone calls between the two regions. However, callers in the US and callers in Africa respond differently to the capacity constraint — US callers respond by adjusting their call duration more than African callers do, while African callers respond more to call volume than do US callers. Furthermore, callers adjust faster to their desired call duration than to their desired call volume. We also show that failure to control for capacity constraint biases price elasticities of the demand for international telephone calls downwards. We provide research and policy implications for the findings.