Template-Type: ReDIF-Paper 1.0
Title: The Welfare Effects of Early Termination Fees in the US Wireless Industry
Author-Name: Joseph Cullen
Author-Email: jacullen@gmail.com
Author-Name: Nicolas Schutz
Author-Email: nicolas.schutz@gmail.com
Author-Name: Oleksandr Shcherbakov
Author-Email: oshcherbakov@bank-banque-canada.ca

Classification-JEL: D12, L11, L13, L40, L96
Keywords: switching costs, perfect foresight, structural estimation, dynamics

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.

Note: 
Length: 51
Creation-Date: 2020-12
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp247
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2020_247