Delineating markets for bundles with consumer level data: The case of triple-play

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Journal Article
International Journal Of Industrial Organisation, 2013, 31 (6), pp. 760 - 773
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The question of whether bundles of telecommunication services are relevant product markets is addressed. As a first step, demand for bundles of services, as well as the associated services, is modeled as a discrete choice problem with a potentially large number of products. A unique invoice based consumer level data set from Portuguese telecommunications firms is collected. This choice based data set is combined with survey data to characterize the market shares of all potential combinations of services available. Several discrete choice models are estimated. A Cross-Nested logit model is the most parsimonious description of the substitution patterns between the large number of products available. The demand model used, coupled with the definition of choice alternatives proposed, generates flexible substitution patterns, which produce reasonable price elasticities of demand. The demand for triple-play products is elastic, with own-price elasticities for the larger firms ranging between 3.2 and 1.3, and a market own-price elasticity of 1.4. Some of the products analyzed are found to be complementary. Our results indicate that triple-play bundles are a relevant product market.
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