The effect of user interaction on the demand for mobile text messages: Evidence from cross-country data

This work presents an empirical analysis of the impact of user interaction on the demand for telecommunications. Specifically, we measure mobile telephony demand estimating a point-to-point model of the text messaging traffic exchanged cross-network, identifying the impact of incoming traffic as well as network size. The analysis relies on a monthly dataset spanning 15 countries for the period 2002–2007. The econometric estimates of price elasticities indicate that incoming traffic is a key driver of SMS demand, as previously established for fixed telephony. A further novel contribution is the estimation of the demand impact of network size, a confounding factor for the effect of incoming traffic. The results hold implications for theories of network competition, optimal pricing by telecommunications operators and regulation.