Competition, Product Proliferation and Welfare: A Study of the U.S. Smartphone Market

Abstract

This paper studies (1) whether, from a welfare point of view, oligopolistic competition leads to too few or too many products in a market, and (2) how a change in competition affects the number and the composition of product offerings. We address these two questions in the context of the U.S. smartphone market. Our findings show the market contains too few products and that a reduction in competition decreases both product number and product variety. These results suggest that merger policies should be stricter when we take into account the effects of a merger on product choice in addition to those on pricing.