Getting Prices Right: Mobile Phone Di¤usion, Market E ¢ ciency and Inequality1

Preliminary Version Please do not quote In this paper, we study the impact of uneven mobile phone di¤usion on rural markets. We develop a static, stochastic model with spatial arbitrage between two neighboring marketplaces. Producers with a phone in one market can learn the prevailing price in the other market while those without a phone cannot. In a \u85rst stage, we assume that the penetration rates of mobile phones are exogenous. We \u85nd that the introduction of mobile phones reduces price dispersion and yields positive externalities within markets but negative externalities across markets. Mobile phones of course bene\u85t their adopters. When the penetration rate increases in a village, farmers without phones also bene\u85t as the domestic price increases on average. In contrast, farmers in the other village (both with and without phones) are penalized as the price in the other market decreases on average. These e¤ects are stronger when the original di¤erence in penetration rates is higher. Thus, the di¤usion of a new technology which is not uniform may reinforce existing patterns of inequality. In a second stage, we show that these results are robust to endogenizing the penetration rates. Key Words: Mobile phones, technology di¤usion, market e ¢ ciency,Welfare, inequality. 1I would like to thank my supervisor yann Bramoulle for the guidance and the incisive comments he has provided at many stages of this research project