Description:

Ying Fan (University of Michigan): "Spillover Effects in Complementary Markets: A Study of the Indian Cellphone and Wireless Service Markets" with Chirantan Chatterjee and Debi Prasad Mohapatra

Abstract: This paper studies network effects between two complementary markets and quantifies how the presence of technologically more advanced international firms in one market helps the development of the other market (a cross-market spillover effect), which, in turn, benefits domestic firms in the first market (a within-market spillover effect), and more importantly, how consumers benefit from both spillover effects. Our context is the Indian mobile industry during the 4G rollout. The industry consists of two complementary markets: the handset market, where international firms play a big role, and the wireless service market. Using data on sales, prices, and product availability in these two markets, we estimate a structural model of consumer demand, carriers' 4G network expansions, and handset firms' product choices. Our estimates yield four findings that support the spillover effects. Using counterfactual simulations, we quantify how the presence of international handset firms speeds up the 4G network rollout, increases the 4G phone variety, and benefits consumers.