Estimating the switching costs in wireless telecommunication market

Abstract

PurposeSwitching cost is an important concept in the study of consumer loyalty which has implications for organizational business strategy and regulatory policies. Much research has already examined the formation and influence of switching costs on the consumers' repeated purchase intentions, but little research has focused on quantitative measurement of the switching cost itself. This paper aims to address this issue.Design/methodology/approachBy game theory, a complete Nash‐Bertrand model is proposed to accurately estimate consumer switching costs considering price compensation and transport costs in a duopoly. The relationship between switching costs and market structure is then analyzed by using the example of Hong Kong's wireless telecommunication market. From the observed data of China's wireless telecommunication industry, the model calculates switching costs per year of China Mobile and China Unicom's users respectively, as well as other variables.FindingsThe results demonstrate that reducing consumer switching costs will benefit small operators and increase competition in a winner‐take‐all market.Originality/valueThe model is valuable in calculating unseen switching costs and studying the impact of switching costs on market structure, especially for a duopoly in telecommunication.