Problems in Launching the Mobile Internet: Evidence from a Pricing Experiment

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.

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

JEL Classification: L11, D12