To Root or Not to Root? The Economics of Jailbreak

We construct a structural model that allows us to jointly estimate the demand for smartphones and paid apps using a Bayesian approach. Our data comes from more than 500 college students in Hong Kong and Shanghai. We find that the moral cost rather than the monetary cost of jailbreaking smartphones determines its prevalence. Users mainly jailbreak smartphones to use paid apps for free, a reason more important among Android users than iPhone users. Paid apps contribute the lion's share of the profits (between 53% and 71%) for both the Android and iPhone. Strictly prohibiting jailbreaking would decrease the aggregate market share of smartphones in the cell phone market. Apple, however, would sell even more iPhones at the expense of Android smartphones.