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

Nicolas Schutz, Joseph Cullen and Oleksandr Shcherbakov

No 15506, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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)
Date: 2020-11
New Economics Papers: this item is included in nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP15506 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: The Welfare Effects of Early Termination Fees in the US Wireless Industry (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:15506

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP15506

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().