NETWORK EFFECTS AND SWITCHING COSTS IN THE U.S. WIRELESS INDUSTRY

Stefan Weiergraeber

International Economic Review, 2022, vol. 63, issue 2, 601-630

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.

Date: 2022
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