Non-User Utility and Market Power: The Case of Smartphones

Firms can increase the demand for their products and consolidate their market power not only by increasing user utility but also by decreasing non-user utility. In this paper, we examine this mechanism by considering the case of smartphones. In particular, Apple has faced criticism for allegedly degrading the Android user experience by making messages to Android devices appear as green bubbles on iPhones—a salient signal often perceived as reflecting a lower socioeconomic status. Using samples of US college students, we show that green bubbles are widely stigmatized and that a majority of both iPhone and Android users would prefer green bubbles to no longer exist. We then conduct an incentivized deactivation experiment, revealing that iPhone users have a significant willingness to pay to prevent their messages from appearing as green bubbles on other iPhones. Next, we examine the market implications of non-user utility and find that respondents are substantially more likely to choose an Android over an iPhone when green bubbles are removed. We conclude by presenting case studies that illustrate how companies use product features to reduce non-user utility in various markets.