IExclusivity: An Effect of Iphone Exclusivity Arrangement on Demand for Smartphones
65 Pages Posted: 28 Apr 2016
Date Written: April 2016
Abstract
We examine how an exclusivity arrangement between Apple and wireless carriers affected the purchases of iPhones. Under this arrangement, one wireless carrier in each country became the exclusive iPhone distributor for a given duration. The restriction could lead to a bounded choice set of consumers attached to non-exclusive carriers and thus affect their choice of smartphone. To measure how this limited access would impact smartphone sales and consumer welfare, we collect a unique panel data of mobile handset sales from 2008 to 2012 in six developed countries and estimate a structural model of consumer demand on this data. Our model accounts for the possible endogeneity in timing of iPhone exclusivity and for the heterogeneous consumer taste. We find that the exclusivity arrangement resulted in a significant reduction in iPhone sales and overall smartphone sales. Specifically, the exclusivity arrangement was estimated to lead to a decrease of approximately 26.2 million unit sales of iPhone but to an increase of only 15.1 million unit sales of other smartphones in these 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 compensated for Apple’s losses.
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