Non-User Externalities and Market Power

Leonardo Bursztyn, Jan Fasnacht, Rafael Jiménez-Durán, Aaron Leonard, Filip Milojević and Christopher Roth

No 33642, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Firms can increase the demand for their products and consolidate their market power by increasing their users’ utility but also by strategically creating negative externalities for competing products’ users. We study this mechanism in the smartphone market, analyzing Apple’s strategy of marking messages to Android users with distinctive “green bubbles.” In surveys with U.S. college students, we show that green bubbles are widely stigmatized and that a majority of both iPhone and Android users would prefer they were removed. An incentivized deactivation experiment reveals that iPhone users require substantial compensation to have their messages appear as green bubbles on other iPhones. Exploiting uncertainty around the DOJ case against Apple, we show that removing green bubbles shifts choices from iPhone to Android. Finally, we document the prevalence of non-user externalities and analyze their implications across a variety of product features.

JEL-codes: D83 D91 J15 P16 (search for similar items in EconPapers)
Date: 2025-04
New Economics Papers: this item is included in nep-com, nep-exp and nep-reg
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Working Paper: Non-User Externalities and Market Power (2025)
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