Network effects and preference
heterogeneity in the case of mobile
telecommunications markets.
電管碩一
姓名：盧怡珊
學號：R96001049
Outline
 Introduction
 The method
 Empirical study
 Results
 Discussion and conclusions
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1.Introduction
 The aim of this study was to verify if network effects may still
play a role in the Polish mobile telecommunications market.
1.
2.
3.
4.
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it is verified whether network effects exist and measure their
strength,
their sources and variability across consumers are identified
by accounting for consumers’ observable and unobservable
preference heterogeneity
their monetary value to consumers is evaluated
it is verified whether marginal utility associated with network
effects is constant
1.Introduction
 Another interesting area of research is the perception of
operator brand and its influence on consumer choices.
 Kim and Kwon (2003) found that the choice of a network is
partly affected by an operator’s brand.
 Birke and Swann (2005) provided evidence that the choice of a
particular network operator depends on the choices made by
the consumer’s household members and on past choices the
consumer made
 This result indicates a brand loyalty effect.
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2.The method
 This paper demonstrates how revealed-and stated-preference
analyses can be used for modeling network effects in the field
of mobile telecommunications.
 One of the most prominent methods utilizing stated-
preference data is a choice experiment.
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2.The method
 2.1 Modeling discrete choice data
 Assuming that the utility associated with any state can be
divided into a sum of contributions that can be observed by a
researcher, and a component that cannot, and hence is
assumed random, leads to the following specification of
utility function:
 In this case, the probability that alternative j is chosen from a
set of J alternatives that are available for individual i can be
expressed as
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2.The method
 2.2 Preference heterogeneity
 The random utility expression of an individual’s utility
function in RPL can be done in the following way:
 The general random utility model can be expressed in a more
concise form:
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2.The method
 2.3 Designing choice experiments
 As there are often too many attributes (and their possible
levels) to include all possible combinations in a single choice
experiment, a so-called fractional factorial design can be used.
It consists of including only some combinations of attribute
levels in alternatives.
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3.Empirical study
2002
strategy
9
2005
2007
2009
incumbent
operators
ORG
ERA
PLUS
Incumbents
offering
3G set higher average prices to exploit their customer
92%bases,
market
services
but
at the same time try to reduce switching by offering freeshare
on-net
calls to selected subscribers.
new entrant
operator
PLAY
Play offers extra
thepackages
fourth of off-net
2G national
minutes
roaming
for customers
with porting
8% market
their current numbers.
UMTS
PLUS and 3G services in
share
license
its own UMTS network
3.Empirical study
 Development of the questionnaire
 The survey was conducted on a sample of 267 students from
the Faculty of Economic Sciences at the University of Warsaw.
 Revealed-preference questions referred to the current use of
a mobile phone—type of contract, current mobile operator,
and calling profile.
 The first of the attributes was a brand name of the mobile
operator’s network.
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3.Empirical study
 Development of the questionnaire
 Operators in Poland do not apply flat rates, but price-
discriminate based on call destination.
 There are many other characteristics, which may
influence the choice of mobile provider, such as SMS and
MMS prices, minutes’ allowances, download speeds,
contract flexibility, etc.
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3.Empirical study
 An impact on the choice of a mobile operator was not
necessarily the total number of subscribers in the network,
but rather the number of people whom consumers most
often call.
 Family—people, such as parents, siblings, partners, and other
people, who are not necessarily family, but are considered to be
‘the closest’.
 Friends—all persons, with whom the respondent maintains
regular contact.
 Others—all other people whom a respondent contacts
irregularly.
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4.Results
 4.1 Operator choice—respondents’ revealed preferences
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4.Results
 4.1 Operator choice—respondents’ revealed preferences
 Revealed-preference analysis indicates that Play is more often
chosen by lower-income students, who use prepaid offer and
pay for services themselves.
 On the other hand, incumbent networks attract respondents
with higher average bills and those who have larger family
groups.
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4.Results
 4.2.1 The presence of network effects
This indicate that the respondents
prefer to subscribe to one of the big
three networks rather than to Play.
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The percentage of the members in
the family group is the most
significant determinant of choice.
4.Results
 4.2.1 The presence of network effects
 Overall, the findings provide evidence of the presence of the
network effect.
 It is observed that the choice of an operator is strongly
determined by a presence of the people with whom a
consumer contacts most often and is in the closest
relationship.
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4.Results
 4.2.2 Sources of the observed preference heterogeneity
βORA>βERA>βPLU
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4.Results
 4.2.3 Valuation of the network effects
 The WTPs for the choice attributes are reported in Table 4.
Being subscribed to Orange, Era, or Plus in
comparison with Play was to the respondents
worth an increase of 7.10, 3.03, and 2.80 PLN in
their monthly bill.
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4.Results
 4.2.4 Marginal network effects
In conclusion, the results indicate that in this
case, the marginal network effects are
constant inside each of the two groups.
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5.Discussion and Conclusions
 By utilizing both revealed- and stated-preference analysis, it
is possible to observe that the choice of an operator is
strongly determined by a presence of the people with whom
a consumer contacts most often and with whom they have
the closest relationship.
 By applying a choice-experiment method, it was observed
that the network effect is more influential for those whom
the consumer considers to be closer or maintains contacts
more often (e.g. family members) than for looser
relationships (e.g. friends).
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5.Discussion and Conclusions
 Another observation resulting from the stated-preference
approach was the significant impact of the status-quo
operator on each of the respondent’s choices.
 Although this sample of university students is not
representative for the Polish mobile telecommunications
market, it is argued that these results can still be useful.
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Q&A
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