Pricing and Entry Incentives with Exclusive Contracts: Evidence from Smartphones
65 Pages Posted: 8 Feb 2014
Date Written: January 2014
Abstract
I study the implications of exclusive contracts for smartphones. Theory models indicate that lower demand elasticities for handsets relative to wireless networks could lead to exclusive contracts maximizing joint profits of the contracting parties. I estimate smartphone and carrier demand on a detailed monthly market-level dataset of US consumer decisions over 2008-2010. Counterfactual simulations show that AT&T had the highest willingness to pay for exclusivity with Apple only after accounting for equilibrium price effects, and that this exclusivity increased entry incentives for rivals. A bargaining analysis shows that Apple negotiating with competing carriers was essential to the observed market structure.
JEL Classification: L11, L14, L96
Suggested Citation: Suggested Citation
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