The Doubtful Profitability of Foggy Pricing
AbstractThis paper studies whether competition may induce firms abandoning deceptive pricing strategies aimed to profit from mistaken choices of consumers. The empirical analysis focuses on the pricing practices of early U.S. cellular firms, both under monopoly and duopoly. Foggy tariff options are those that are dominated by another option or a combination of other tariff options offered by the firm. I also define a measure of fogginess of non-dominated tariffs based on the range of airtime usage for which they are the least expensive option among those available. Results indicate that firms offer more dominated tariff options in a competitive market than under monopoly. While markets are profitable, perhaps because they grow or because firms collude, the use of foggy tactics is not frequent. However, if the market is more mature, or if firms do not cooperate, thus reducing the return to their investment, then they commonly turn to foggy pricing.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 04-07.
Length: 30 pages
Date of creation: Oct 2004
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Nonlinear Pricing; Foggy Strategies; Co-opetition;
Other versions of this item:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-26 (All new papers)
- NEP-COM-2006-08-26 (Industrial Competition)
- NEP-IND-2006-08-26 (Industrial Organization)
- NEP-MKT-2006-08-26 (Marketing)
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