Purpose – The purpose of this paper is to assess the impact on mobile demand of an asymmetric regulation policy introduced in the year 2009 in Colombia. It aims to do this by estimating demand models for mobile services during the 2005 to 2011 period. Design/methodology/approach – The economic analysis uses two‐stage least squares and ordinary least squares (OLS) econometric techniques. The paper models minutes used in Colombia as a function of prices, income, a time trend and a regulation dummy variable. The study controls for endogeneity issues in the price variable by using two instruments: Colombia's exchange rate COP – USD and the Producer Price Index. Findings – The paper finds a price elasticity of demand and an income elasticity of approximately ‐0.66 and 0.30, respectively, within the range of previous findings in the literature. The study estimates that the introduction of the asymmetric regulation on the incumbent mobile's on‐net and off‐net prices reduced demand for mobile services and caused a loss in consumer surplus of approximately USD 108 million. Originality/value – The paper presents the first empirical analysis of a regulatory policy affecting prices at the retail level on consumer's welfare in the mobile sector in Colombia. It advises policy‐makers in the telecommunication sector to use caution when regulating mobile markets' prices because the costs of this regulation can be significant.
info – Emerald Publishing
Published: May 3, 2013
Keywords: Telecommunications demand; Mobile services; Consumer surplus; Asymmetric regulation; On‐net and off‐net tariffs; Developing countries; Telecommunication services; Demand