Estimating demand for cellular phone service under nonlinear pricing

Cellular phone carriers typically offer complicated nonlinear tariffs. Consumers make a discrete choice among several rate plans. Each plan has a nonlinear price schedule, and price is usually lower for in-network calls. I present an empirical framework to estimate demand under such nonlinear pricing schemes by using parsimonious carrier-level data and apply the estimation method to analyze the market in Taiwan. I evaluate the impacts of termination-based pricing schemes on the market structure by counterfactual simulations. There is no evidence showing that the network effect resulting from termination-based pricing has significant effects on market structure. © Springer Science+Business Media, LLC 2008.