Estimation of Price Elasticities for an International Telephone Demand Model

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The demand for international telephone calls in Australia is comprised of three components: the operator-connected services; station-to-station and person-to-person and the direct dialling service; ISD. Associated with these individual services are three distinct prices: the ISD tariff, operator-connected tariff and person-to-person surcharge. In order to estimate elasticities for both tariffs and the surcharge an econometric model is developed that has two sub-models, each of which consists of an aggregate equation and an allocation system. One model determines how the total number of calls is allocated among the three services while the second allocates the total number of minutes called between ISD and operator-connected services. The model is estimated using aggregate data for telephone traffic emanating from Australia.