Exclusive Handset Arrangements in the Wireless Industry: A Competitive Analysis
Marketing Science, Mar/Apr2013, Vol. 32 Issue 2, p246
Posted: 9 Sep 2012 Last revised: 12 Nov 2013
Date Written: September 7, 2012
In many markets, a handset vendor and a service provider may enter into a tie-up for a handset to be available exclusively through the service provider. We examine when and why a service provider and a handset vendor may find this arrangement mutually profitable. We find that an exclusive tie-up may serve a dual strategic purpose. By restricting its handsets to one service provider, a handset vendor may be able to induce a rival handset vendor to compete less aggressively. At the same time, the service provider may be able to essentially raise a rival service provider's handset costs by limiting the handsets available to the rival. Interestingly, the handset vendor's market share may be higher when its handset is exclusive than when it is not. Our results might explain why exclusive tie-ups may be more attractive in some market settings than in others, why some service providers may have several exclusive handsets even if not all of them may be popular, and how some handset vendors may enjoy high market shares despite having many of their handsets exclusive. Further, supporting concerns raised by proponents of wireless network neutrality, an exclusive tie-up may lower the handset vendor's incentives to improve handset quality.
Keywords: Competitive Strategy, Distribution Channel, Exclusive Arrangements, Game Theory, Raising Rival's Costs, Wireless Network Neutrality
JEL Classification: C72, D43, L13, L42
Suggested Citation: Suggested Citation