The impact of price decreases on telephone and cell phone diffusion

The diffusion process (the degree of penetration within a region) of telephones and cell phones has proceeded rapidly in most regions, but the factors influencing diffusion rates are still unknown. Using data from six regions (which varied in terms of economic wealth, stage of diffusion, technological and social infrastructures, and institutional policies), and two different technologies (telephone and cell phone) we showed that price-adjusted diffusion models had better explanatory power than pure diffusion models, validating Gurbaxani and Mendelson's model. We found that the impact of price decreases was positive and significant in all regions and for both technologies. Additionally the study showed that the impact of price decreases was stronger for less wealthy regions and for nations with higher developed social infrastructure (as measured by educational level) and greater political stability (as measured by Mauro's composite index) after controlling for GDP. We also found that, in general, the price effect was stronger for telephones (an older technology) than for cell phones.