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Policy Study

A Study on the Economic Effects of Mobile Handset Subsidy

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  • Author KIM. Minjung
  • Date 2014/12/31
  • Series No. Policy Study 2014-17
  • Language Korean
SUMMARY This research empirically studies the economic effects of mobile handset subsidy in view of consumer welfare. I first estimate a structural demand model of mobile handset and service using rich micro data and then, based on the estimation results, measure the change in consumer surplus under the counterfactual scenarios of banning or restricting handset subsidies. The results show that the welfare improvement by lowered mobile service prices might not offset the welfare loss by increased handset prices if the government restricts the level of handset subsidies. In addition, the switching costs are estimated to be still considerable, so there is a possibility that the handset subsidy regulation might strengthen the market power of existing firms and hamper the effective competition. Thus, telecommunication policy should be directed toward enhancing the transparency of handset prices and creating an environment promoting competition in service price and quality, rather than regulating the type of discrimination and the level of handset subsidies.
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