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Network Effects And Switching Costs In The U.S. Wireless Industry

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  • Stefan Weiergraeber

Abstract

I estimate a model of dynamic consumer behavior to disentangle switching costs and network effects in the U.S. wireless industry. A detailed panel on market shares and churn rates, disaggregated by demographic consumer types and local markets, allows me to separately identify preference heterogeneity, switching costs, and a localized direct network effect. My switching cost estimates range from USD 47 to USD 178. The average willingness‐to‐pay for a 15 percentage point increase in a carrier's market share is USD 8.50 per month. Finally, I show that ignoring either one of the effects results in substantial errors when simulating counterfactuals.

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  • Stefan Weiergraeber, 2022. "Network Effects And Switching Costs In The U.S. Wireless Industry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(2), pages 601-630, May.
    • Handle: RePEc:wly:iecrev:v:63:y:2022:i:2:p:601-630
    DOI: 10.1111/iere.12543
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    2. Yue Liu & Rong Luo, 2023. "Network Effects and Multinetwork Sellers’ Dynamic Pricing in the U.S. Smartphone Market," Management Science, INFORMS, vol. 69(6), pages 3297-3318, June.

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