Mobile and fixed substitution for telephone service in China

A panel of province by year data for China from 1998 to 2007 is used to estimate own- and cross-price elasticities for fixed and mobile telephone service. Identification is achieved through the use of measures of the level of competition and privatization of the industry. Moreover, using neighboring province values ensures instrumental variable exogeneity. Estimates suggest that fixed and mobile subscriptions are fairly strong substitutes. This provides evidence for the development of competition between these platforms.

► Finds substantial demand substitution between fixed and mobile telecommunications.
► Applies theory and methods to what has become the largest telecommunications market in the world.
► Applies an econometric estimator that minimizes the scope for estimation bias.