Are all those Calling Plans Really Necessary? The Limited Gains From Complex Tariffs
AbstractThis Paper uses an equilibrium model of nonlinear pricing to determine the magnitude of foregone rents due to the implementation of simplified screening mechanisms. I then study the distribution of these foregone rents conditional on observable characteristics of a large sample of independent cellular telephone markets. Estimates reveal that the sample mean of foregone profits for not offering an additional tariff option amounts only to $0.33 (1986 dollars) per subscriber although this amount declines to $0.13 if cellular carriers already offer three tariff options. But these foregone profits only represent 4% and 0.6% of the profits attainable with a fully nonlinear tariff, respectively. The evidence presented in this Paper suggests that, contrary to the current common practice, firms should only offer few tariff options if the product development costs of designing them are non-negligible.
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 InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4237.
Date of creation: Feb 2004
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-29 (All new papers)
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.:
- Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
- Dionissis Dimopoulos, 1981. "Pricing Schemes for Regulated Enterprises and Their Welfare Implications in the Case of Electricity," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 185-200, Spring.
- MacKinnon, James G. & White, Halbert, 1985.
"Some heteroskedasticity-consistent covariance matrix estimators with improved finite sample properties,"
Journal of Econometrics,
Elsevier, vol. 29(3), pages 305-325, September.
- James G. MacKinnon & Halbert White, 1983. "Some Heteroskedasticity Consistent Covariance Matrix Estimators with Improved Finite Sample Properties," Working Papers 537, Queen's University, Department of Economics.
- Miravete, Eugenio J & Röller, Lars-Hendrik, 2003. "Competitive Non-Linear Pricing in Duopoly Equilibrium: The Early US Cellular Telephone Industry," CEPR Discussion Papers 4069, C.E.P.R. Discussion Papers.
- Auerbach, Alan J & Pellechio, Anthony J, 1978. "The Two-Part Tariff and Voluntary Market Participation," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 571-87, November.
- Meghan R. Busse, 2000. "Multimarket Contact and Price Coordination in the Cellular Telephone Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 287-320, 06.
- Eugenio J. Miravete, 2005. "The Welfare Performance Of Sequential Pricing Mechanisms ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1321-1360, November.
- Khaled Diaw & Jérôme Pouyet, 2004.
"Competition, Incomplete Discrimination and Versioning,"
2004-20, Centre de Recherche en Economie et Statistique.
- Diaw, Khaled & Pouyet, Jérôme, 2004. "Competition, Incomplete Discrimination and Versioning," CEPR Discussion Papers 4589, C.E.P.R. Discussion Papers.
- DIAW, Khaled & POUYET, Jerome, 2004. "Competition, incomplete discrimination and versioning," CORE Discussion Papers 2004054, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Diaw, K. & Pouyet, J., 2004. "Competition, Incomplete Discrimination and Versioning," Discussion Paper 2004-69, Tilburg University, Center for Economic Research.
- Khaled Diaw & Jérôme Pouyet, 2005. "Information, competition and (In) complete discrimination," Working Papers hal-00243025, HAL.
- Miravete, Eugenio J, 2007.
"The Doubtful Profitability of Foggy Pricing,"
CEPR Discussion Papers
6295, C.E.P.R. Discussion Papers.
- David S. Evans & Michael Salinger, 2004. "An Empirical Analysis of Bundling and Tying: Over-the-Counter Pain Relief and Cold Medicines," CESifo Working Paper Series 1297, CESifo Group Munich.
- David S. Evans & Michael Salinger, 2005. "Curing Sinus Headaches and Tying Law: An Empirical Analysis of Bundling Decongestants and Pain Relievers," CESifo Working Paper Series 1519, CESifo Group Munich.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.