The Impact of iPhone Exclusivity Arrangement on Demand for Smartphones

36 Pages Posted: 19 Jul 2014

See all articles by Daegon Cho

Daegon Cho

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Anuj Kumar

University of Florida - Warrington College of Business

Rahul Telang

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Date Written: July 18, 2014

Abstract

In this paper, we examine how an exclusivity agreement between Apple and wireless carriers in six developed countries affected the purchase of iPhones. Under this arrangement, one wireless carrier in each country became the exclusive distributor of the iPhone for a given period of time. The restriction would lead to a bounded choice set of consumers attached to non-exclusive carriers and thus would affect their choice of smartphone. To measure how this limited access to the iPhone would affect smartphone sales and consumer welfare, a structural model of consumer demand is developed and applied to a unique data set comprised of a panel data of mobile handset sales for a five-year period from 2008 through 2012 in the six countries considered. The model accounts for the possible endogeneity of the exclusivity duration, for heterogeneous consumer taste, and for variations in iPhone availability across consumers. The parameters estimated by this model suggest that the exclusivity arrangement ultimately resulted in a significant reduction in iPhone sales and an overall loss in the sale of all smartphones. Specifically, while it was estimated that the exclusivity arrangement would lead to a decrease in iPhone sales of approximately 26.2 million and an increase in the sale of other smartphones of only 15.1 million in the six countries. Our results also suggest that although the restricted availability of the iPhone may have led to a substantial reduction in consumer welfare, a revenue-sharing agreement between Apple and the wireless carriers may have mitigated the company's loss of profit.

Suggested Citation

Cho, Daegon and Kumar, Anuj and Telang, Rahul, The Impact of iPhone Exclusivity Arrangement on Demand for Smartphones (July 18, 2014). Available at SSRN: https://ssrn.com/abstract=2468048 or http://dx.doi.org/10.2139/ssrn.2468048

Daegon Cho (Contact Author)

College of Business, Korea Advanced Institute of Science and Technology (KAIST) ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)

Anuj Kumar

University of Florida - Warrington College of Business ( email )

337 STZ WARRINGTON COLLEGE OF BUSINESS
GAINESVILLE, FL 32611-0001
United States
3522730587 (Phone)

Rahul Telang

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

4800 Forbes Ave
Pittsburgh, PA 15213-3890
United States
412-268-1155 (Phone)

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