The Welfare Effects of Early Termination Fees in the US Wireless Industry

Joseph Cullen (), Nicolas Schutz and Oleksandr Shcherbakov

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

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 (search for similar items in EconPapers)
JEL-codes: D12 L11 L13 L40 L96 (search for similar items in EconPapers)
Pages: 51
Date: 2020-12
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Working Paper: The Welfare Effects of Early Termination Fees in the US Wireless Industry (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2020_247

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