Text and Voice: Complements, Substitutes or Both?

Frode Steen, Øystein Foros and Kjetil Andersson

No 5780, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Text messaging has become an important revenue component for European and Asian mobile operators. We develop a simple model of demand for mobile services incorporating the existence of call externalities and network effects. We show that when incoming messages and calls stimulate outgoing communications, services that are perceived as substitutes, such as mobile text and voice, may evolve into complements in terms of the price effect when the network size becomes large. We estimate the demand for text messaging in the Norwegian market and find that the cross-price effect of voice depends on the network size. Voice is a substitute for text messages for small network sizes, and a complement for large network sizes.

Keywords: Text messaging; Demand structure; Call externalities; Positive feedback effects; Network effects (search for similar items in EconPapers)
JEL-codes: C2 D12 L1 (search for similar items in EconPapers)
Date: 2006-08
New Economics Papers: this item is included in nep-net
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Citations: View citations in EconPapers (4)

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Journal Article: Text and voice: complements, substitutes or both? (2009)
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