Uniform vs Competing Standards: A Structural Analysis of the U.S. Wireless Telecommunications Industry (Job Market Paper)

Abstract

Compatibility is recognized to be a socially desirable outcome but the welfare implications from a uniform standard are still ambiguous. This paper studies the effect of unifying two incompatible standards for wireless networks in the U.S. wireless telecommunications market from 2015 to 2018. I develop and estimate a structural model of consumer choices of wireless carriers and 3G coverage investment to quantify the impact of a compatible network. Using counterfactual experiments, I find that compatibility is the welfare superior policy, regardless of the technology chosen. While the overall producer surplus is higher when moving to uniform wireless networks, whether consumers are better off depends on the technology standard chosen. Under a Global System for Mobile Communications (GSM) regime, consumer surplus decreases by $1.7 billion, coverage decreases by 20.01%, and prices increase for two wireless carriers. Under a Code Division Multiple Access (CDMA) compatible network, consumer surplus increases by $2.2 billion, coverage decreases by 9.78%, and prices fall for all four major carriers.