A Quantitative Analysis of the Effects of a Handset Subsidy on Consumer Welfare

Observation of the effects of a handset subsidy on the mobile telecommunication industry has revealed two different aspects. The activation of various mobile services and the handset market, has led to the rapid acceleration of the related technological development, which is a desirable result, while rising prices and the overspending of related resources are undesirable. A great deal of research has been conducted to assess both desirable and undesirable factors using qualitative methods. However, quantitative studies into the effects of a handset subsidy are rare. In this study, we consider the positive and negative effects on consumer welfare of a change in demand and prices brought about by a handset subsidy. Then, we quantitatively compare the positive and negative effects and analyze their direct effects on consumer welfare.