International Trade Tensions and Price Dynamics in the Smartphone Market

Working Paper

This paper analyzes the impact of the recent trade tensions between the United States of America and China on the prices of mobile phones commercialized in uninvolved countries. The empirical analysis relies on a large dataset of daily prices of over 3,000 handsets in the European Union, collected on a price comparison website. A difference-in-differences approach is developed to test the causal relationship between events related to the US-China trade war, in particular the ban directed towards Huawei’s products, and their price developments. The estimation results allow to conclude that the ban on Huawei’s products in the US impacted negatively and significantly the prices of the smartphones sold by the Chinese firm in all of the countries studied. Additional analyses show that other Chinese brands – and even a sub-brand of Huawei – were not affected in a similar fashion, suggesting that the international media coverage on Huawei’s ban is what, very likely, caused the negative shock observed on their products’ prices in the European Union. Finally, the results provide some evidence that the effects of this shock quickly disappeared and left the operating system market structure unaffected.