How much do switching costs and local network effects contribute to consumer lock-in in mobile telephony?

Abstract

Our study focuses on the identification and measurement of switching costs and local network effects in mobile telecommunications. As these two phenomena are the two components of consumer lock-in, omitting one of them likely results in biased estimates of the second, limiting applicability to policy relevant questions. Yet, there have been only a few attempts to integrate them into one model of subscriber behavior. Our study adds to this stream of research by applying a discrete choice experiment designed specifically to model subscription choices on a representative sample of mobile phone users in Poland. We find that the effective prices of calls appear to be a major determinant of operator choice. Switching costs continue to affect consumer behavior despite the introduction of number portability. Local network effects represent a smaller, albeit significant, component of consumer lock-in. Subscribers are heterogeneous with respect to the magnitudes of both lock-in components.