Demand for and Pricing of Mobile Internet: Evidence from a Real-World Pricing Experiment

Commercialization of innovations frequently stumbles. A prominent recent example are the early (i.e. pre3G) mobile phoneenabled Internet services, whose European takeup was slower than expected. To determine why, we build a structural model of demand for such services and estimate it using consumerlevel panel data from a real world pricing experiment. The experiment allows for a decomposition of the number of wireless connections into the number of needs instances where a consumer would establish a connection if the price were zero and the conditional probability of establishing a connection. We find that needs were plenty and potential consumer surplus several magnitudes higher than that attained. Marginal costs implied by the model are higher than those extracted from a structured survey of industry experts, indicating that prices were suboptimally high. We find that pricing reduced usage substantially.