The Effect of Shortening Lock-in Periods in Telecommunication Services

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In this research note, we study the welfare implications of shortening the length of the lock-in period associated with triple play contracts using household level data, from a large telecommunications provider, for a period of 6 months. Using a multinomial logit model to explain consumer behavior we show that, in our setting, shortening the length of the lock-in period decreases the aggregated profit of the firms in the market more than it increases consumer surplus. This result arises because shortening the length of the lock-in period increases churn, and the costs to set up service for the consumers that churn and join a new carrier supersede the increase in the consumers’ willingness to pay for service when the length of the lock-in period shortens. Published online July 22, 2020
Additional Details
Author Baojiang Yang, Miguel Godhinho de Matos, and Pedro Ferreira
Year 2020
Volume 44
Issue 3
Keywords Lock-in periods, switching costs, telecommunications, multinomial logit
Page Numbers 1391-1409; DOI: 10.25300/MISQ/2020/14839
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