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Intra Household

Intra Household - Intra-Household Eects on Demand for...

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Electronic copy available at: http://ssrn.com/abstract=991772 Intra-Household Effects on Demand for Telephone Service: Empirical Evidence Ching-I Huang August 12, 2010 Abstract I present a game-theoretical model to empirically analyze the consumption interac- tions among household members. Although multiple Nash equilibria of consumption decisions may exist in a household, model parameters are pointwise identified for house- holds with only two members. I propose a semiparametric maximum likelihood estimator and apply it to study the subscription decision for cellular phone service in Taiwan. On average, a consumer’s probability of subscribing to cellular service rises 14 percentage points when the other household member chooses to subscribe, suggesting the existence of intra-household network effects. Moreover, intra-household effect is heterogeneous among households. It increases in household income, but decreases in the number of children and the age difference in a household. Keywords: consumption externality, multiple Nash equilibria, demand estimation, mobile phone service, network effect Department of Economics, National Taiwan University, Taipei, Taiwan. This paper was previously cir- culated under the title “Intra-Household Consumption Externalities of Cellular Phone Service”. I received helpful comments from Aviv Nevo, Robert Porter, William Rogerson, James Heckman, Chung-Ming Kuan, and Yi-Chi Chen. I have also benefited from comments received from participants in 2007 North American summer meeting and Far Eastern meeting of the Econometric Society, 2008 EARIE conference, and 2009 Inter- national Industrial Organization Conference. I appreciate the assistance from the Center for Survey Research of Academia Sinica in providing data. Financial supports from the Center for the Study of Industrial Organi- zation at Northwestern University and the National Science Council in Taiwan are gratefully acknowledged. All remaining errors are mine. 1
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Electronic copy available at: http://ssrn.com/abstract=991772 1 Introduction The goal of this research is to empirically analyze the interdependence of consumption deci- sions on telephone service within in a household. Specifically, I estimate the intra-household effect , which is defined as the change in a consumer’s willingness to use the service in response to the choice of other household members. I propose a game-theoretical framework to model the interactions between household members. Heterogeneity of intra-household effect can be explained by observed household characteristics. While many previous works have found the existence of network effect in several industries (See Farrell and Klemperer (2007) for a survey of empirical studies on network effects.), they typically assume network effect depends only on the number of users in the industry.
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