Essays on the Economics of Telephones and Evolving Technologies
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Telephones have changed dramatically from their introduction to their current form, and done so most significantly since the introduction of cell phones in the 1980s. This has impacted competition in the telephony market. I study this competitive impact of cell phones on the landline market through demand analysis in the first two essays; I turn my attention to the smartphone market in the final essay. In the first essay, I examine the effect of cell phones on telephony demand using the Consumer Expenditure Survey. I develop and estimate a model of household choice using a mixed logit as a function of consumer characteristics, unobserved alternative-specific attributes, and prices. My focus is on the evolution through time. I construct market segments and track adoptions. Evidence suggests that the move to cell phones is driven by young and and large housholds. I develop and apply a decomposition of substitutability and find that substitutability differs through time. Cell phone technologies and consumer culture have changed dramatically since 1983, affecting the level of competition in the regulated telephony market. In the second essay, I develop an empirical strategy to estimate changing demand that addresses changing technologies and preferences. I develop a flexible methodology that allows for likelihood-based estimation of a broad class of latent-dependent-variable models with time-varying parameters. Applying my methodology with a logit model and Bayesian methods, I study the evolution of preferences. Consumers have become more price-sensitive, indicating that improvements to cell phones have provided an increasing competitive constraint on landline pricing. In the third essay, I develop a model of the US smartphone industry; consumers demand products according to a random utility model; firms compete in a dynamic oligopoly model; I incorporate supply-side learning. Firms learn demand through time inspired by recursive least squares adaptive learning. Firms choose whether to release new devices and when to remove devices from the market according to expected future profits. I estimate fixed costs in this market, finding a competitive environment with significant fixed costs. Results show large entry costs and scrap values driven by substantial intellectual property related to technology products.