Inference of Service with Limited Data Apple and China Unicom's iPhone Exclusivity
This paper provides a framework for evaluating retailers' service even when service is not observed. The identification of service comes from the variation in manufacturer's wholesale prices, in the sense that retailer's optimization over service enters the manufacturer's first order condition and thus alters its price setting. Using new data containing wholesale prices from China Unicom, China's second largest wireless carrier, I construct and estimate a dynamic structural demand model of consumers with persistent heterogeneous tastes. The demand estimates are then used in the structural supply model to estimate service parameters. I find that service has a significantly positive effect on expanding market demand; however, its impact subsides over time. I argue that this pattern in service provides a potential explanation for Apple's initial exclusive contract with China Unicom and subsequent contract arrangements.