Competition and consumer surplus in the Indian wireless telecommunication market an econometric analysis

Abstract

The present study has been undertaken to measure the level of competition and change in consumer surplus, their relationship with mobile penetration, the relationship of competition and the price of a voice call. The time-series quarterly data for the period Q2 of FY 2006-07 to Q2 of FY 2019-20 has been sourced from TRAI and RBI. For measurement of change in consumer surplus, the demand function has been estimated by executing the Autoregressive distributive lag model (ARDL). The price elasticity of demand is estimated at -0.48 and -0.37 for the long-run and short-run respectively. The income elasticity of demand is estimated at 0.51 in the long-run. The aggregate change in consumer surplus for the period Q4 of FY 2007-08 to Q2 of FY 2019-20 is estimated at Rs 82474.81 crore (in 2019 prices) by using the demand function. The change in consumer surplus is also estimated by using data of average revenue per user (ARPU) and the number of subscribers and the aggregate change in consumer surplus is valued at Rs 55259.37 crore (in 2019 prices). The concentration ratio reveals that the market is concentrated around three or four operators during the period. A unidirectional causality has been found running from competition to price. Competition, network capacity and income show a positive effect on mobile penetration in the long-run. In India, the results of the study categorised wireless telecommunication services as necessary goods. newline