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Dynamic nonlinear pricing: Biased expectations, inattention, and bill shock

  • Grubb, Michael D.

Recent research highlights the importance of biased expectations and inattention for nonlinear pricing in dynamic environments. Findings are: (1) Three-part tariffs, such as cellular service contracts, exploit consumer overconfidence. (2) Surprise penalty fees may be used to further exploit biased beliefs or alternatively to price discriminate more efficiently whenever consumers are inattentive. (3) Implementing the recent bill-shock agreement between cellular carriers and the FCC is predicted to harm rather than help consumers when endogenous price changes are taken into account.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 30 (2012)
Issue (Month): 3 ()
Pages: 287-290

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Handle: RePEc:eee:indorg:v:30:y:2012:i:3:p:287-290
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Malmendier, Ulrike M. & Della Vigna, Stefano, 2003. "Contract Design and Self Control: Theory and Evidence," Research Papers 1801, Stanford University, Graduate School of Business.
  2. Pascal Courty & Li Hao, 1997. "Sequential screening," Economics Working Papers 224, Department of Economics and Business, Universitat Pompeu Fabra.
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  6. Michael D. Grubb, 2009. "Selling to Overconfident Consumers," American Economic Review, American Economic Association, vol. 99(5), pages 1770-1807, December.
  7. Yong Chao, 2013. "Strategic Effects Of Three‐Part Tariffs Under Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 977-1015, 08.
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