تجزیه و تحلیل تجربی هزینه سوئیچینگ در بازار گوشی های هوشمند در کره جنوبی  An empirical analysis of switching cost in the smartphone market in South Korea

1. Introduction As noted in the previous research conducted by Farrell and Klemperer (2007) and Klemperer (1995), switching cost sets a higher price for locked-in consumers by making the market less competitive. The lock-in effect due to switching cost may also restrict consumer’s choices, decrease utility, and cause less innovative firm behavior (Cline, 2012). Switching costs have received much attention both theoretically and empirically because switching costs play an important role in analyzing market competition, firms’ price strategies, and consumer welfare. Like other products, a smartphone also has important issues with the relationship between its switching cost and market competitiveness. Frank (2015) argues that consumers’ switching costs should be critically considered because they affect market entry barriers or a dominant firm’s discriminating behavior. Kenney and Pon (2011) note that several layers can arise due to the lock-in effect from Google with search engines, email, maps, and YouTube; Apple with their App store; Microsoft with MS office; and others. They also note that switching cost would be increased due to subsidies for smartphone devices from telecommunication companies inducing a one- or two-year contract and due to incompatibility between CDMA and GSM technologies. Cullen and Shcherbakov (2010) and Nakamura (2010) estimated switching costs in mobile in the wireless industry. Nakamura (2010) evaluated lock-in effects of Subscriber Identity Module (SIM) cards in Japan and showed SIM unlock policies reduce consumer switching costs. Cullen and Shcherbakov (2010) concluded that switching costs for changing mobile service providers ranged from $225.7 to $236.3. They noted that there are additional hassle costs because early termination fees in the U.S. range from $175 to $200. Lee, Kim, Lee, and Park (2006) and Maicas, Polo, and Javier Sese (2009) investigated the effect of mobile number portability on switching costs. The adoption of mobile number portability significantly reduced switching costs in both studies. Although there have been a few studies that empirically analyze switching costs in the mobile telecommunications market, studies considering the characteristics of smartphones are hardly found. Although, up to now, contracts, mileage, and mobile number portability have been considered as major factors in mobile handset change, we should consider additional factors related to smartphone characteristics because market situations have changed. Smartphone users face new switching factors such as operating systems and the applications market. One of the important characteristics of a smartphone is that it is possible to install various applications on it. However, the applications are not compatible among different operating systems (OS). This means a customer cannot use his/her own purchased applications after switching to a smartphone with a different operation system. In addition, there is a learning cost for using other smartphones. That is, a consumer accustomed to a current smartphone needs time and effort to be familiar with other smartphones with different operation systems or user interfaces. In this study, we will discuss some implications of making a competitive mobile market, based on the empirical evidence on smartphone switching cost. The rest of this study is structured as follows: Section 2 briefly explores the switching costs of smartphones. Section 3 provides data and an econometric model for measuring switching costs. Estimation results are presented in Section 4 and Section 5 discusses the main findings.