Microeconomics Case Study

Mobile Telephony in India: Would Cheaper Rates Bring More Profits?

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Abstract:
The case study analyses the elasticity of mobile demand in India with respect to the change in not only its own price but also the price of a related good and the income of the consumers. From call rates as high as INR 16/minute in 1995 to as low as INR 1/minute in 2008 and from a subscriber base of 0.03 million in 1995 to 346.9 million in 2008, India has come a long way in its tryst with what can be called a revolution in ‘mobile telephony’. Drastic reduction of call rates and handset prices lifted the mobile telephone sector from the red as Indians responded well to the cuts. As demand for mobile services saw a huge rise, the volume expansion more than counter-balanced the price reduction. The case also clues in the perceptive readers about an interesting link between the price elasticity of demand and the impact of change in price on revenue. Understanding this serves as a linchpin to the viability of business decisions. Fittingly, the case helps facilitate such understanding through the real life example of India's experience with mobile telephony.

Pedagogical Objectives:

• To understand the concept of elasticity of demand and discuss various types of elasticity of demand
• To understand the link between price elasticity of demand, revenue and business decision.

Keywords : Elasticity of Demand, Price Elasticity of Demand, Income Elasticity of Demand, Cross Elasticity of Demand, Degrees of Elasticity of Demand, Total Revenue, Price, Link between Total Revenue and Price, Relationship between Total Revenue and Price Elasticity of Demand, Revenue and Business Decision, Economics for Firms, Microeconomics, Managerial Economics