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

We consider a structural model of demand and supply where firms endogenously offer vertically differentiated products and exercise second-degree price discrimination. We apply this model to the smartphone industry and quantify the welfare effects of price discrimination and competition. We use counterfactual simulations to assess how the welfare changes when each firm only offers its highest-quality product. We also study the market outcomes such as price, product variety and welfare if later entrants in the market entered earlier.