Estimating Switching Costs for Telecommunications Services and Bundles
33 Pages Posted: 1 Mar 2021 Last revised: 8 Jan 2022
Date Written: January 3, 2022
We develop a consumer level demand model of telecommunications and broadcasting services considering an exhaustive set of alternatives available to consumers including bundled services. We then estimate switching costs associated with bundling. Previous studies consider restricted choice sets confined to the choices of only one or two services, and abstract away from interrelation among different services through bundling. We find that our approach improves the accuracy of switching cost estimates compared to when the choice sets are restricted in the demand model. Our results also indicate that switching costs incurred with bundling are substantial making up about 65% of monthly costs for the services.
Keywords: Switching costs, Lock-in effects, Bundling, Consumer demand, Mixed logit
JEL Classification: L13, L41, L96
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