Measuring consumer switching costs in the wireless industry

In this paper we develop a general framework for estimating a model of consumer behavior in the wireless industry. The model reflects two distinct features of the market: durability of the handsets and potential switching costs associated with the change of service provider. In order to estimate parameters of the structural model we use consumer survey data from 2005-2009. Results using a myopic, representative consumer model suggests the presence of significant consumer switching costs associated with a change of provider amounting to approximately $230 USD. Our proposed framework allows for more complex empirical models than explored here including the introduction of persistent unobserved consumer heterogeneity in tastes for handset-carrier combinations as well as the possibility of strategic, dynamic, decision making on the part of consumers.