Author:

Keywords:

wireless Internet, , , , , ,, demand, new goods, pricing, services, surplus, two-part-tariff, welfare

Abstract:

Commercialization of innovations frequently stumbles. A prominent recent example is the early (i.e. pre-3G) mobile phone-enabled Internet services, whose European take-up was slower than expected. To determine why, we build a structural model of demand for such services and estimate it using consumer-level panel data from a pricing experiment. The experiment allows a decomposition of the number of wireless connections into the number of needs - instances where a consumer would establish a connection if the price were zero - and the conditional probability of establishing a connection. We find that needs were plenty and potential consumer surplus several magnitudes higher than that attained. We find that pricing reduced usage substantially and explore potential reasons for the high prices.