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

35 Pages Posted: 24 Nov 2011 Last revised: 19 Apr 2013

See all articles by Ting Zhu

Ting Zhu

University of Chicago

Hongju Liu

Peking University - Guanghua School of Management

Pradeep K. Chintagunta

University of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2011


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.

Keywords: Exclusive Arrangement, Distribution Channels, Wireless Service

JEL Classification: L13, L25, L42, L96

Suggested Citation

Zhu, Ting and Liu, Hongju and Chintagunta, Pradeep K., Wireless Carriers’ Exclusive Handset Arrangements: An Empirical Look at the iPhone (October 1, 2011). Chicago Booth Research Paper No. 13-09, NET Institute Working Paper No. 11-35, Available at SSRN: https://ssrn.com/abstract=1958060 or http://dx.doi.org/10.2139/ssrn.1958060

Ting Zhu (Contact Author)

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Hongju Liu

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871

Pradeep K. Chintagunta

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8015 (Phone)
773-702-0458 (Fax)

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