Working Paper: CEPR ID: DP15506
Authors: Joseph Cullen; Nicolas Schutz; Oleksandr Shcherbakov
Abstract: We develop and estimate a dynamic structural model of the US wireless industry. The demand model features two sources of dynamics: First, consumers that switch contracts must pay early termination fees to their current wireless service provider; second, handsets are durable. Consumers and wireless carriers are forward-looking and, in contrast to previous work, have perfect foresight over the evolution of the industry. Carriers compete using open-loop strategies. Counterfactual simulations reveal that the elimination of early termination fees, despite raising equilibrium prices, unambiguously benefits consumers. Firms may benefit as well provided the cost of processing early termination fees is high enough.
Keywords: switching costs; perfect foresight; structural estimation; dynamics
JEL Codes: D12; L11; L13; L40; L96
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| elimination of ETFs (G23) | increase in consumer welfare (D11) |
| elimination of ETFs (G23) | lower effective prices for consumers (D41) |
| elimination of ETFs (G23) | firms benefit if costs > $160 (D21) |
| elimination of ETFs raises equilibrium prices (D53) | increase in consumer surplus (D11) |