Working Paper: CEPR ID: DP7153
Authors: Farid Gasmi; Marc Ivaldi; Laura Recuero Virto
Abstract: We analyze demand for prepaid cellular voice and short message service (SMS) in South Africa by means of a demand-and-supply structural model based on a multinomial specification fitted to a cross-sectional data set on Vodacom customers collected in 2005. We find that consumers are very sensitive to changes in prices, with higher price elasticities than those typically found in developed countries. Consumers attach a higher value to communications during peak hours but since these are priced highly, they are as much as twice more elastic than off-peak communications. In relative terms, demand for communications during peak hours is more elastic for urban than for rural consumers, while the reverse can be said about demand for off-peak hours. The highest valuations are those placed by rural consumers on working hour communications. A policy implication of our analysis is that while in terms of access cellular deployment in South Africa has gone a long way into bridging the gap between the ``first'' and ``second'' economies, in terms of usage if market organizations or regulatory institutions were to encourage further investment in network availability in rural areas this could be rewarding both for the firm and its rural customers.
Keywords: development economics; differentiated product models; telecommunications demand
JEL Codes: C31; D12; D40; L96; R00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price (D41) | demand (R22) |
| peak hour price (L97) | peak hour demand (L97) |
| off-peak price (L97) | off-peak demand (L97) |
| urban consumers (R22) | peak hour demand elasticity (L97) |
| rural consumers (R22) | off-peak demand elasticity (L97) |
| income levels (J31) | valuation of cellular services (L96) |