The US mobile phone service industry has dramatically consolidated over the last two decades. One justification for consolidation is that merged firms can provide consumers with larger coverage areas at lower costs. We estimate the willingness to pay for national coverage to evaluate this justification for past consolidation. As market level quantity data are not publicly available, we devise an econometric procedure that allows us to estimate the willingness to pay using market share ranks collected from the popular online retailer Amazon. Our semiparametric maximum score estimator controls for consumers’ heterogeneous preferences for carriers, handsets and minutes of calling time. We find that national coverage is strongly valued by consumers, providing an efficiency justification for across-market mergers. The methods we propose can estimate demand for other products using data from online retailers where product ranks, but not quantities, are observed.
Authors: Patrick Bajari, Jeremy Fox, and Stephen P. Ryan
Quantitative Marketing and Economics, Vol. 6, No. 4, December 2008, pp. 299–338 (lead article) (link)