Abstract
I develop a structural demand model for mobile telephony that facilitates the identification of network effects and inter-network compatibility. Network effects are measured as the dependence of consumer willingness to pay on the installed base of subscribers, compatibility as the relative extent of cross- and own-network effects. Estimating the model using quarterly panel data from the Polish mobile telephone market for the period 1996–2001, I find strong network effects and, despite full interconnection of the mobile telephone networks, low compatibility. I also show that ignoring network effects leads to overestimation of demand elasticity.
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