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.
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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;
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