Estimating Network Economic Effects in Mobile Telecommunications: A Case Study for Hamrah Aval in Tehran

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Abstract

Network effects, increase in the value of consuming a product if many other consumers use the same product, is a feature of many markets of high-technology products. Frequently cited examples of products exhibiting network effects are telecommunication or software products. This research explores the role of network effects in the consumer´s choice of mobile operator in Tehran. For our empirical analysis, we use three sources of data: the real volume of on-net calls and the real volume of off-net calls; expected volume of on-net calls and the expected volume of off-net calls by the market share of each operator; and the prices of off-net and on-net calls. We estimate a model that illustrates the role of network effects. The results show that the proportion of off-net calls reduces as mobile operators charge a premium for off-net calls. In addition, in the absence of any price differences between on-net and off-net calls, the net network effect is not recognized.
JEL Classification: L14, D85

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