Topic: Vertical contracts and customer service in a Chinese mobile phone market

Speaker: Jia Li, Washington University (Marketing)

Time: 1:30-3:00pm, July 5, 2010

Location: Room216, New Building of GSM, Peking University

Abstract

We examine the welfare impacts of different vertical contracts and resulting retail customer service levels. Using four years of data of mobile phone sales from a Chinese department store that switched from linear pricing where the retailer controlled retail prices and staffing to revenue sharing where these retail activities are taken care of by individual manufacturers, we estimate consumer demand and manufacturer cost parameters. After controlling for price changes, demand estimates indicate a large positive demand shift (consistent with improved retail consumer service) that coincided with the vertical change. Welfare estimates suggest that consumers derived substantially more surplus from improved customer service than from the lowered prices.

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