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Estimating the Demand for Service Bundles under Three‐Part Tariffs

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  • Liang Chen
  • Yao Luo
  • Ping Xiao

Abstract

Consumers may face demand uncertainty when choosing a service plan under three‐part tariffs, and preferences for multiple services may be inter‐dependent. To examine such a demand system, we construct a two‐stage discrete/continuous choice model for service bundles, allowing for interactive utility and preference correlations. Implementing a piecewise maximization approach to consumers’ non‐differentiable utility maximization problem, we estimate the model via simulated method of moments. We empirically illustrate the model using data from a Chinese wireless service provider. Our counterfactual analysis shows that the three‐part tariffs with interchangeable units show no significant loss of revenue, compared to existing tariffs.

Suggested Citation

  • Liang Chen & Yao Luo & Ping Xiao, 2019. "Estimating the Demand for Service Bundles under Three‐Part Tariffs," Journal of Industrial Economics, Wiley Blackwell, vol. 67(3-4), pages 448-483, September.
    • Handle: RePEc:bla:jindec:v:67:y:2019:i:3-4:p:448-483
    DOI: 10.1111/joie.12206
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    Cited by:

    1. Liang Chen & Yao Luo, 2023. "Empirical Analysis of Network Effects in Nonlinear Pricing Data," Working Papers tecipa-758, University of Toronto, Department of Economics.

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