Spillover Effects in Complementary Markets: A Study of the Indian Cell Phone and Wireless Service Markets

This paper studies how spillovers across complementary markets shape product variety and firm entry. We examine the Indian cell phone and wireless service markets during the 4G rollout and estimate a structural model of demand, pricing, carrier network expansion, and phone product choice. The estimation results support the economic forces through which complementarity generates spillovers. Counterfactual simulations show that banning budget Chinese phones slows 4G deployment by roughly five quarters and lowers consumer welfare without raising domestic firms' profits. Similarly, an unrestricted subsidy outperforms a domestic-only subsidy in expanding network coverage, increasing consumer welfare, and raising domestic firms' profits.