Exclusive Tie-Up for a Handset in the Wireless Industry: A Competitive Analysis

Subramanian, Upender; Raju, Jagmohan S.; Zhang, Z. John

doi:10.2139/ssrn.2143459

Cited by 3 publications

(5 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In some cases such constraints can reduce economic welfare, whereas in other cases they may increase economic welfare. In particular, Subramanian et al [7] examines when and why a cellular service provider and a handset manufacturer may decide to enter an exclusive contract. Their model suggests that the exclusive contract raises the rival service provider's handset costs by reducing the competition faced by a rival handset manufacturer.…”

Section: Vertical Restraintsmentioning

confidence: 99%

“…Because most consumers in the U.S. purchase handsets in a bundle with a two-year service contract from a wireless carrier, the availability of handsets can significantly influence consumers' choice of wireless carriers. 4 Thus wireless carriers can use an exclusive handset as a competitive differentiator to attract more consumers (Subramanian et al [7]). For example, in the first quarter of 2009, 23 % of the new AT&T subscribers signed up for "a phone not offered by my carrier" (i.e., for the iPhone), and the company has reported that 40 % of its iPhone customers switched from other services [8].…”

Section: Introductionmentioning

confidence: 99%

“…They argue that the deals encourage innovation and competition among handset manufacturers. However, smaller carriers such as U.S. Cellular 6 and consumer groups such as Rural Cellular Association 7 have complained about such deals, arguing that an exclusive arrangement hurts competition and prevents residents of rural areas from getting access to the latest technologies.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Wireless Carriers’ Exclusive Handset Arrangements: an Empirical Look at the iPhone

Zhu

Liu

2015

Cust. Need. and Solut.

View full text Add to dashboard Cite

Since the Apple iPhone's launch in 2007 in an exclusive arrangement with AT&T, it has garnered overwhelmingly positive responses from consumers and from the media. With its success, exclusive contracts between handset makers and wireless carriers have come under increasing scrutiny by regulators and lawmakers. Such practices have been criticized by regulators, by the media, and by "locked-out" consumers, due to the fact that a consumer has to subscribe to a particular service provider if he or she strongly prefers one handset to others. In this paper, we empirically examine the impact of handset exclusivity arrangements on consumer welfare. First we study consumers' purchase decisions for mobile services that include the choice of a handset and of a service provider. We do so by combining panel data on consumers' purchase decisions with supplemented data on prices and features of common handsets. Next, assuming a Stackelberg leader-follower relationship between the handset manufacturers and the service providers, and using our demand estimates, we recover the markups for the players in the market. We then simulate what would have happened in the counterfactual scenario when the iPhone is available from all carriers. Our results suggest that, if we take into account adjustments in handset prices from handset manufacturers and service providers in response to the change in market structure, consumer welfare will increase by $326 million without the exclusive arrangement. We view our analysis as a starting point to a more complete characterization of consumer behavior and the complex relationships among players in this industry.

show abstract

Section: Vertical Restraintsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Wireless Carriers’ Exclusive Handset Arrangements: an Empirical Look at the iPhone

Zhu

Liu

2015

Cust. Need. and Solut.

View full text Add to dashboard Cite

show abstract

“…In some cases such constraints can reduce economic welfare, whereas in other cases they may increase economic welfare. In particular, Subramanian et al (2008) examines when and why a cellular service provider and a handset manufacturer may decide to enter an exclusive contract. Their model suggests that the exclusive contract raises the rival service provider's handset costs by reducing the competition faced by a rival handset manufacturer.…”

Section: Vertical Restraintsmentioning

confidence: 99%

“…Because most consumers in the U.S. purchase handsets in a bundle with a two-year service contract from a wireless carrier, the availability of handsets can significantly influence consumers' choice of wireless carriers. 5 Thus wireless carriers can use an exclusive handset as a competitive differentiator to attract more consumers (Subramanian et al 2008). For example, in the first quarter of 2009, 23% of the new AT&T subscribers signed up for "a phone not offered by my carrier" (i.e., for the iPhone), and the company has reported that 40% of its iPhone customers switched from other services.…”

Section: Introductionmentioning

confidence: 99%

Wireless Carriers’ Exclusive Handset Arrangements: An Empirical Look at the iPhone

Zhu¹,

Liu²

2011

SSRN Journal

View full text Add to dashboard Cite

Since the Apple iPhone's first launch in 2007 with an exclusive arrangement with AT&T, it has garnered overwhelmingly positive responses from consumers and from the media. With its success, exclusive contracts between handset makers and wireless carriers have come under increasing scrutiny by regulators and lawmakers. Such practices have been criticized by regulators, by the media, and by "locked-out" consumers, due to the fact that a consumer has to subscribe to a particular service provider if he or she strongly prefers one handset to others. In this paper, we empirically examine the impact of handset exclusivity arrangements on consumer welfare. First we study consumers' purchase decisions in mobile services that include the choice of a handset and of a service provider. We do so by combining survey data on consumers' purchase decisions with supplemented data on prices and features of common handsets. Next, assuming a Stackelberg leader-follower relationship between the handset manufacturers and the service providers, and using our demand estimates, we recover the marginal costs for the players in the market. We then simulate what would have happened in the counterfactual scenario when the iPhone is available from all carriers. Our results suggest that, if we take into account price adjustments from handset manufacturers and service providers in response to the change in market structure, consumer welfare will increase by $326 million without the exclusive arrangement. We view our analysis as a starting point to a more complete characterization of consumer behavior and the complex relationships among players in this industry.

show abstract