Tariff-Specific Preferences and Their Influence on Price Sensitivity
AbstractFor 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by German Academic Association for Business Research in its journal BuR - Business Research.
Volume (Year): 3 (2010)
Issue (Month): 1 (May)
flat rate; flat-rate bias; nonlinear pricing; pay-per-use bias; price elasticity; pricing; tariff choice; tariff-specific preferences; three-part tariffs;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brown,Stephen J. & Sibley,David Sumner, 1986. "The Theory of Public Utility Pricing," Cambridge Books, Cambridge University Press, number 9780521314008.
- 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.
- 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.
- 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.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tina Osteneck).
If references are entirely missing, you can add them using this form.