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Telephone Demand: A Theoretical Approach and its Application to the Portuguese Case
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We develop a theoretical model which explains the joint decision for joining a telephone network and using it. We arrive at testable propositions and use data for the Portuguese telephone services to test them. Results suggest that positive network externalities are very important. A 10% increase in the network would increase the demand for access by 7-8% in the long run and an increase in traffic by 6-7% in the long run (assuming constant population). The income elasticity for traffic is greater than one in the long run. Both these results imply a strong pressure in the telephone network and a need for planning so that the quality of the services does not deteriorate.
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Pereira, Pedro Telhado, Telephone Demand: A Theoretical Approach and its Application to the Portuguese Case (September, 1991). FEUNL Working Paper Series No. 175