Competition, Product Proliferation, and Welfare: A Study of the US Smartphone Market

Abstract

This paper studies (1) whether, from a welfare point of view, oligopolistic competition leads to too few or too many products in a market, and (2) how a change in competition affects the number and the composition of product offerings. We address these two questions in the context of the US smartphone market. Our findings show that this market contains too few products and that a reduction in competition decreases both the number and variety of products. These results suggest that product choice adjustment may exacerbate the welfare effect of a merger. (JEL D43, G34, K21, L13, L41, L63)

Vertical structure and innovation: A study of the SoC and smartphone industries

“…The carriers marked down the wholesale price substantially and made profits back from service fees that the consumers had to pay every month for 2 years. Most notably, carriers sold each generation's latest iPhone models for about $200 before 2013, but the wholesale prices were above $600 (Fan and Yang, 2020). I assume that the carrier markdown on product j is specified as r jt =λ q exp q jt +λ n( j) +λ Q( j) +λ c( j)t +κ jt , and the retail price is p jt = w jt − r jt .…”

“…The Apple brand fixed effect in the demand function is large, worth over $400 to consumers. Additional details of the demand estimation are documented in Fan and Yang (2020). I now discuss how to estimate the marginal cost function (8).…”

Brand Loyalty in a Bertrand-Type Oligopoly Setting

“…Of course, the experience-type evidence provided here should be taken with a grain of salt; it ought to be considered as somewhat supportive of the proposed structure. Undoubtedly, to test the theoretical predictions of the model a rigorous empirical model is needed such as the one utilized by Fan and Yang (2019) [22] in their seminal paper.…”

“…In the smartphone industry, given the abundant applications, different market (country) conventions and the technical peculiarities as well as uncertainties associated with quality, the work of Fan and Yang (2019) [22], as delineated in section 3 of their paper, could offer useful guidance along these lines.…”

Endogenous and Selective Service Choices After Airline Mergers

“…Subsequent work has tried to integrate models of entry and competition, introducing the challenges outlined above. A common approach, for example Draganska, Mazzeo, and Seim (2009), Eizenberg (2014), Wollmann (2016) and Fan and Yang (2016), excludes selection by assuming that firms have no information on unobserved demand or marginal cost shocks when entry or service choices are made. 7 This assumption allows demand and marginal cost functions to be estimated separately from the entry game.…”