Network Effects and Multinetwork Sellers’ Dynamic Pricing in the U.S. Smartphone Market

Abstract

Although the literature on network effects has focused on single-network firms, many industries feature multinetwork firms that play more complex dynamic pricing games. In this paper, we estimate the network effect at the smartphone operating system (OS) level and study multi-OS telecommunication carriers’ dynamic pricing strategies in an oligopolistic setting, using data on the U.S. smartphone industry. We find a positive OS network effect. Counterfactual analysis indicates that if the carriers were single-OS sellers, they would increase the phone prices of large OSs and lower the prices of small OSs, which reduces the consumer surplus by $6.99 billion. Further analyses show that the multi-OS carriers choose lower prices for large OSs than for small OSs because of their preference for OS concentration. This paper was accepted by Eric Anderson, marketing.