The role of network effects and consumer heterogeneity in the adoption of mobile phones: Evidence from South Africa

• We estimate the role of network effects and consumer heterogeneity in the adoption decision of mobile phones in South Africa.
• We find significant network effects on the household level.
• We also find significant observed and unobserved consumer heterogeneity.
• Both network effects and consumer heterogeneity contribute to s-shaped diffusion pattern of new technology.

In this paper we analyze the role of network effects and consumer heterogeneity in the adoption of mobile phones. We estimate the decision to adopt a mobile phone using panel survey data of South African households between the years 2008 and 2012, which includes interviews with all adult household members. We construct variables which approximate network effects on the household level and find that the greater the number of mobile phones in the household, the greater the likelihood that the other household members will also adopt a mobile phone. Moreover, network effects depend on who in the household adopts a mobile phone. Without within-household network effects the penetration of mobile phones of 76.4% in 2012 would be lower by about 9.9 percentage points. The decision to adopt a mobile phone is also explained by observed and unobserved consumer heterogeneity.