Exclusive Handset Arrangements in the Wireless Industry: A Competitive Analysis

Posted: 13 Nov 2013

See all articles by Upender Subramanian

Upender Subramanian

University of Texas at Dallas - Naveen Jindal School of Management

Jagmohan S. Raju

University of Pennsylvania - Marketing Department

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing

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Abstract

In many markets, a handset vendor and a service provider may enter into a tie-in for a handset to be available exclusively through the service provider. We examine when and why a service provider and a handset vendor may find this arrangement mutually profitable. We find that an exclusive handset arrangement (EHA) may serve a dual strategic purpose. By restricting its handsets to one service provider, a handset vendor may be able to induce a rival handset vendor to compete less aggressively. At the same time, the service provider may be able to essentially raise a rival service provider's handset costs by limiting the handsets available to the rival. Interestingly, the handset vendor's market share may be higher when its handset is sold exclusively than when it is not. Our results might explain why EHAs seem more attractive in some markets than in others, why some service providers have exclusive arrangements even for handset models that do not seem popular, and how some handset vendors enjoy high market shares despite having many exclusive models. Furthermore, an EHA may lower the handset vendor's incentives to improve handset quality, supporting concerns raised by proponents of wireless network neutrality.

Keywords: competitive strategy, distribution channel, exclusive arrangements, game theory, raising rival's costs, wireless network neutrality

Suggested Citation

Subramanian, Upender and Raju, Jagmohan S. and Zhang, Z. John, Exclusive Handset Arrangements in the Wireless Industry: A Competitive Analysis. Marketing Science, Vol. 32, No. 2, 2013; pp. 246-270; DOI: 10.1287/mksc.1120.0752. Available at SSRN: https://ssrn.com/abstract=2328568

Upender Subramanian (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

Dallas, TX
United States

Jagmohan S. Raju

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States
215-898-1114 (Phone)
215-898-2534 (Fax)

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing ( email )

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