Telephone Demand over the Atlantic: Evidence from Country-Pair Data.

Abstract

International calls include consumption and financial externalities. Theoretical analysis predicts that the volume of outbound and inbound calls is a function of originating-country price ("own-price") and terminating-country price ("cross-price"). Analysis of annual data for minutes of calling between the U.S. and seventeen West European countries from 1979 to 1986 reveals negative own-price effects in both directions, with inbound calls more elastic. Cross-price effects are generally not statistically significant. The findings are consistent with arbitrage and call-externality motivation that cancel each other. Level of GDP, number of telephones, and telex prices are statistically significant. Copyright 1992 by Blackwell Publishing Ltd.