Quality, Variety, and Welfare: The U.S. Smartphone Market
Abstract
It is commonplace for firms operating in multi-product markets, like the smartphone market, to offer a product portfolio that spans a range of quality levels. In markets of this nature, product proliferation is directly correlated with the level of oligopolistic competition in the marketplace. This study aimed to understand (1) how the product quality of smartphones changes over time, (2) whether the increase in the number of products is contributing to product variety (a measurement that increases with the meaningful product), and (3) whether oligopolistic competition stimulates an excess or lack of products in the market from a welfare perspective within the context of the US smartphone market. This study found within the smartphone market, the quality and variety of products available increases over time. Also, the current study's findings indicate that the smartphone market commences with a lack of products; however, by the end of 2015, the number and variety of products increases and eventually becomes a market with excess products. The change occurs because in moderately concentrated market conditions, firms are incentivized to avoid cannibalization of their own product(s), resulting in a lack of products and as the market a highly concentrated, the losses that are incurred from cannibalization of sales are less than the gains that can be secured from deterring competitors from adding products, it leads to the market being flooded with excess products.