Modular Confines of Mobile Networks: Are Iphones Iphony?

Abstract

Strategic investments by wireless carriers and others are generating rapid development of the “mobile ecology,” increasing modularity even while embracing and extending vertical controls. Coordination among complementary asset owners and simultaneous rivalry among platforms suggests that the process of creative destruction is robust. Moreover, innovation “at the edge” is vibrant, with smartphone suppliers Research in Motion (Blackberry), Apple (iPhone), Google (gPhone), among others, driving carrier strategies. That vertical network policies help generate welfare gains is apparent via revealed consumer preferences, the advanced state of technology under “strong bundling” in Japan, and the fact that even ostensibly “open” platforms retain an important measure of vertical control, efficiencies yielding value in rivalry against competing platforms.

Keywords: AOL, AT&T, application platforms, business models, Carterfone, cellular, choice, FCC, Federal Communications Commission, marketplace, Microsoft, monopoly, Motorola, Nokia, Palm, price system, regulation, Ronald Coase, Timothy Wu, vertical integration

JEL Classification: K23, L14, L26, L51, L63, L96