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Tariff-Specific Preferences and Their Influence on Price Sensitivity

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  • Agnieszka Wolk

    ()
    (Johann Wolfgang Goethe University of Frankfurt)

  • Bernd Skiera

    ()
    (Johann Wolfgang Goethe University of Frankfurt)

Abstract

For many services, consumers can choose among a range of optional tariffs that differ in their access and usage prices. Recent studies indicate that tariff-specific preferences may lead consumers to choose a tariff that does not minimize their expected billing rate. This study analyzes how tariff-specific preferences influence the responsiveness of consumers’ usage and tariff choice to changes in price. We show that consumer heterogeneity in tariff-specific preferences leads to heterogeneity in their sensitivity to price changes. Specifically, consumers with tariff-specific preferences are less sensitive to price increases of their preferred tariff than other consumers. Our results provide an additional reason why firms should offer multiple tariffs rather than a uniform nonlinear pricing plan to extract maximum consumer surplus.

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Bibliographic Info

Article provided by German Academic Association for Business Research in its journal BuR - Business Research.

Volume (Year): 3 (2010)
Issue (Month): 1 (May)
Pages: 70-80

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Handle: RePEc:vhb:journl:v:3:y:2010:i:1:p:70-80

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Related research

Keywords: flat rate; flat-rate bias; nonlinear pricing; pay-per-use bias; price elasticity; pricing; tariff choice; tariff-specific preferences; three-part tariffs;

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  1. Brown,Stephen J. & Sibley,David Sumner, 1986. "The Theory of Public Utility Pricing," Cambridge Books, Cambridge University Press, number 9780521314008.
  2. Sridhar Narayanan & Pradeep Chintagunta & Eugenio Miravete, 2007. "The role of self selection, usage uncertainty and learning in the demand for local telephone service," Quantitative Marketing and Economics, Springer, vol. 5(1), pages 1-34, March.
  3. Schlereth, Christian & Stepanchuk, Tanja & Skiera, Bernd, 2010. "Optimization and analysis of the profitability of tariff structures with two-part tariffs," European Journal of Operational Research, Elsevier, vol. 206(3), pages 691-701, November.
  4. Anja Lambrecht & Katja Seim & Bernd Skiera, 2007. "Does Uncertainty Matter? Consumer Behavior Under Three-Part Tariffs," Marketing Science, INFORMS, vol. 26(5), pages 698-710, 09-10.
  5. Eugenio J. Miravete, 2003. "Choosing the Wrong Calling Plan? Ignorance and Learning," American Economic Review, American Economic Association, vol. 93(1), pages 297-310, March.
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