Crowding Out or Complementarity in the Telecommunications Market?

There is a substantial number of cases where the a priori relationshipbetween products is not at all clear in the sense that although apparentto be clear substitutes may turn out to be in fact complements, orvice-versa. This paper aims to study the relationship between fixed andmobile telephony in the United Kingdom and, in particular, address thequestion if mobile communications crowded out fixed telephony or if, onthe other hand, the two types of communications are in fact complements.We estimate a structural continuous-choice demand model following Pinkseet al. (2002), Pinkse and Slade (2004), and Slade (2004) and we findthat at the current diffusion stage, fixed and mobile communicationsappear to be complements. Given that the model is micro-founded, we alsoaddress the question of how the evolution of the price differentialbetween the two types of communication may, respectively, affect thewelfare of consumers and firms. We find that the continuation of theseprice trends have substantial welfare benefits for subscribers and atthe same time have no significant impact on the pro ts for firms.Finally, we present some economic policy implications, especially aboutthe need to (de)regulate telecommunications provision.