Essays on Estimating Network Effects and Switching Costs

Weiergräber, Stefan

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URN: urn:nbn:de:bsz:180-madoc-390042
Document Type: Doctoral dissertation
Year of publication: 2015
Place of publication: Mannheim
University: Universität Mannheim
Evaluator: Schmidt-Dengler, Philipp
Date of oral examination: 26 June 2015
Publication language: English
Institution: School of Law and Economics > Graduiertenkolleg VWL/BWL
School of Law and Economics > VWL, Wirtschaftstheorie u. Behavioral Economics (Schmidt-Dengler 2010-14)
Subject: 330 Economics
Classification: JEL: L00, L96, C51,
Subject headings (SWD): Wechselkosten , Netzeffekt , Mobilfunkindustrie
Keywords (English): network effects , switching costs , demand estimation , wireless industry
Abstract: This thesis consists of three single-authored essays that address open research questions in the empirical analysis of network industries. In the first two chapters, I develop an empirical framework to disentangle different sources of consumer inertia. The use of a detailed data set allows me to identify preference heterogeneity from consumer type-specific market shares and switching costs from churn rates. Identification of a localized network effect comes from comparing the dynamics of distinct local markets. Applying my framework I disentangle the effects of switching costs and network effects in the US wireless industry. In a model with myopic consumers, estimates of switching costs range from USD 316 to USD 630. The willingness to pay for a 20%-point increase in an operator's market share is on average USD 22 per month. When consumers are allowed to be forward-looking, estimates of switching costs and network effects remain large and significant, but substantially smaller than in the myopic model. In the final chapter, I outline an empirical model of dynamic platform competition which can be used to analyze wireless carriers' pricing strategies.

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