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Telecommunications Consumers: A Behavioural Economic Analysis

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  • Lunn, Pete

Abstract

This paper argues that telecommunications markets present the consumer with a decision-making environment that is particularly likely to be prone to established biases in consumer decision-making. The analysis identifies four properties of telecommunications markets, which in combination are probably unique and which may make the sector prey to biases identified by behavioural economics. The analysis offers a range of known behavioural phenomena that, first, may help to explain the generally low levels of switching between telecommunications providers and, second, could result in failure to select optimum contracts, because of inaccurate expectations of usage or time inconsistent preferences. While more research is required to assess the merit of these hypotheses, they raise the possibility that telecommunications markets may be inefficient and prone to less effective competition than many other consumer markets. Potential policy responses are also discussed.

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Bibliographic Info

Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP417.

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Date of creation: Dec 2011
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Handle: RePEc:esr:wpaper:wp417

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Keywords: Policy/Telecommunications/Decision-making biases/Behavioural economics/Regulation;

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  1. Xavier Gabaix & David Laibson, 2005. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," NBER Working Papers 11755, National Bureau of Economic Research, Inc.
  2. Hans-W. Micklitz & Lucia Reisch & Kornelia Hagen, 2011. "An Introduction to the Special Issue on “Behavioural Economics, Consumer Policy, and Consumer Law”," Journal of Consumer Policy, Springer, vol. 34(3), pages 271-276, September.
  3. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-72, June.
  4. Chris M. Wilson & Catherine Waddams Price, 2010. "Do consumers switch to the best supplier?," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 647-668, October.
  5. Kenneth E. Train & Daniel L. McFadden & Moshe Ben-Akiva, 1987. "The Demand for Local Telephone Service: A Fully Discrete Model of Residential Calling Patterns and Service Choices," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 109-123, Spring.
  6. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  7. John A. List, 2003. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," NBER Working Papers 9736, National Bureau of Economic Research, Inc.
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