The Advent of Smartphones and Switching Costs in Mobile Communications

Abstract

We assess how the advent of smartphones affected consumer switching costs in the mobile communications market, using data from two surveys conducted in South Korea. A nested logit random utility model is employed to explain consumers’ choice over service type and carrier, and to estimate switching costs for each service type. We fail to identify whether the switching costs increased while smartphones were penetrating the market. Yet, comparing the switching costs across service types offers some evidence to how smartphones affected the switching costs. We suspect that the effect of reduced physical switching costs dominated at first, but was offset later by the rise in informational switching costs.

Keywords: Switching cost, Smartphone, Mobile communications, Nested logit

JEL Classification: D43, L13, L40, L96