A Dyad Model of Calling Behaviour with Tie Strength Dynamics

This paper investigates the dynamic relation between callers' socialties and their wireless phone service consumption. We construct a largepair-level panel dataset with information on the number of each pair'scommon contacts, calling activities, prices, and each caller'scharacteristics over a one-year time period. We estimate a dynamic modelthat encapsulates the evolving relationship between each pair ofconsumers. We find the amount of communications between a pair ofconsumers increases with the strength of their tie, which is higher whenthese two consumers share more common contacts. Our results support thereciprocity rule in telephone calls, i.e. when individual A initiatesmore (less) phone calls to individual B in one month, their social tiewill be strengthened (weakened) and individual B will make more (less)calls to individual A in the subsequent months. We demonstrate theimplications of our results in evaluating the return of temporary pricepromotions and designing price plans. Our results underscore theimportance of incorporating social network characteristics in the studyof telecommunications markets.