Spillover Effects in Complementary Markets: A Study of the Indian Cellphone and Wireless Service Markets

Résumé

This paper highlights and quantifies how the presence of technologically superior firms in a market helps the development of a complementary market (a cross-market spillover effect), which, in turn, benefits other 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 the handset market, where international firms are technologically more advanced than domestic firms, and the complementary wireless service market. Using a detailed dataset on 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. (with Ying Fan and Chirantan Chatterjee.)