The Korean Economic Review
Handset Subsidy Regulation, Replacement of Handsets, and Quality Investments
Kyoungwon Rhee (Dongguk University-Seoul)Year 2014Vol. 30No. 1
The regulatory agency’s intervention in carriers’ handset subsidization is based on anargument that carriers tend to provide excessive handset subsidies, and thus have a lowincentive either to invest in quality enhancement or to compete in service charges. This paperexamines this issue rigorously. It argues that in the case of subsidization for intra-servicehandset replacement, the handset subsidy regulation can achieve efficiency. Surprisingly,however, the paper demonstrates that in the environment of subsidization for inter-servicehandset replacement, the handset subsidy regulation is irrelevant in that it has no effect onconsumer’s replacement decision and carriers’ incentive for quality enhancing investments.This result implies that the effective charge regulation rather than the handset subsidyregulation can attain efficiency.