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Switching Costs and Network Effects – How Much Do they Really Matter in Mobile Telecommunications?

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  • Mikołaj Czajkowski

    ()
    (Faculty of Economic Sciences, University of Warsaw)

  • Maciej Sobolewski

    ()
    (Faculty of Economic Sciences, University of Warsaw)

Abstract

Our study focuses on the identification and the measurement of switching costs and network effects in mobile telecommunications. Although these two phenomena create similar consumer lock-in mechanisms, there are no empirical studies that integrate them into one model of subscriber’s behavior. Our study fills this gap by applying stated preference valuation methods to a representative sample of individual mobile phone users in Poland. We find that number portability can be attributed to only approximately 50% of the total switching costs associated with changing either the provider or the service and the remaining part is associated with status quo inertia. Additionally, we show that because network effects play an important role in service valuation, they lead to strengthening the lock-in mechanisms even further. Our study provides the first empirical measurements of the relative importance of these simultaneous effects and provides the estimates of their monetary value.

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File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP114.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by Faculty of Economic Sciences, University of Warsaw in its series Working Papers with number 2013-29.

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Length: 25 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:war:wpaper:2013-29

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Related research

Keywords: Switching costs; network effects; mobile telecommunications; mobile number portability; brand valuation; stated preference; non-market valuation; discrete choice experiment; random parameters multinomial logit model;

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References

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  1. Sean Lyons, 2006. "Measuring the Benefits of Mobile Number Portability," Trinity Economics Papers tep2009, Trinity College Dublin, Department of Economics.
  2. Michal Grajek, 2007. "Estimating network effects and compatibility in mobile telecommunications," ESMT Research Working Papers ESMT-07-001, ESMT European School of Management and Technology.
  3. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
  4. Lukasz Grzybowski & Pedro Pereira, 2011. "Subscription Choices and Switching Costs in Mobile Telephony," Review of Industrial Organization, Springer, vol. 38(1), pages 23-42, January.
  5. Lee, Jongsu & Kim, Yeonbae & Lee, Jeong-Dong & Park, Yuri, 2006. "Estimating the extent of potential competition in the Korean mobile telecommunications market: Switching costs and number portability," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 107-124, January.
  6. Czajkowski, Mikolaj & Sobolewski, Maciej, 2010. "Measuring Network Effects in Mobile Telecommunications Markets with Stated‐Preference Valuation Methods," 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation 5, International Telecommunications Society (ITS).
  7. Ferrini, Silvia & Scarpa, Riccardo, 2007. "Designs with a priori information for nonmarket valuation with choice experiments: A Monte Carlo study," Journal of Environmental Economics and Management, Elsevier, vol. 53(3), pages 342-363, May.
  8. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
  9. V. Brian Viard, 2007. "Do switching costs make markets more or less competitive? The case of 800-number portability," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 146-163, 03.
  10. Liikanen, Jukka & Stoneman, Paul & Toivanen, Otto, 2004. "Intergenerational effects in the diffusion of new technology: the case of mobile phones," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1137-1154, November.
  11. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  12. Kim, Hee-Su & Kwon, Namhoon, 2003. "The advantage of network size in acquiring new subscribers: a conditional logit analysis of the Korean mobile telephony market," Information Economics and Policy, Elsevier, vol. 15(1), pages 17-33, March.
  13. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
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