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Multipart tariffs and bounded rationality: An experimental analysis of mobile phone plan choices

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  • Friesen, Lana
  • Earl, Peter E.

Abstract

Multipart tariff structures add to the computational challenges in choosing mobile phone connection services. We study the quality of decision making in a laboratory environment where consumers only face a small set of mobile phone plan options but have to contend with different degrees of tariff complexity as well as uncertain usage. Our main finding is that simply eliminating the multipart tariff structure does not necessarily lead to better decisions. Rather it is multipart tariffs with included values in excess of monthly fees, thus entailing two-tier pricing structures with increasing marginal costs, which lead to the worst decisions. Knowledgeable participants, who understand mobile phone plan pricing, make significantly better choices.

Suggested Citation

  • Friesen, Lana & Earl, Peter E., 2015. "Multipart tariffs and bounded rationality: An experimental analysis of mobile phone plan choices," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 239-253.
    • Handle: RePEc:eee:jeborg:v:116:y:2015:i:c:p:239-253
    DOI: 10.1016/j.jebo.2015.04.016
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    Cited by:

    1. Earl, Peter E. & Friesen, Lana & Shadforth, Christopher, 2019. "Elusive optima: A process tracing analysis of procedural rationality in mobile phone connection plan choices," Journal of Economic Behavior & Organization, Elsevier, vol. 161(C), pages 303-322.
    2. Jin, Haofeng & Lu, Zhentong & Huang, Liqiang & Dou, Junsheng, 2021. "Not too much nor too little: Salience bias in mobile plan choices," Telecommunications Policy, Elsevier, vol. 45(4).
    3. Jin, Haofeng, 2022. "The effect of overspending on tariff choices and customer churn: Evidence from mobile plan choices," Journal of Retailing and Consumer Services, Elsevier, vol. 66(C).
    4. Sandoval, Hector & Hancevic, Pedro & Bejarano, Hernán, 2025. "The hidden costs of tariff misclassification: Structural winners and losers," Energy Economics, Elsevier, vol. 144(C).
    5. Mary-Alice Doyle, 2018. "Consumer Credit Card Choice: Costs, Benefits and Behavioural Biases," RBA Research Discussion Papers rdp2018-11, Reserve Bank of Australia.
    6. Gerpott, Torsten J. & Meinert, Phil, 2018. "Termination notice of mobile network operator customers after a tariff switch: An empirical study of postpaid subscribers in Germany," Telecommunications Policy, Elsevier, vol. 42(3), pages 212-226.
    7. Xue, Lian & Sitzia, Stefania & Turocy, Theodore L., 2017. "Mathematics self-confidence and the “prepayment effect” in riskless choices," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 239-250.
    8. Lana Friesen & Peter E. Earl, 2020. "An Experimental Analysis of Regulatory Interventions for Complex Pricing," Southern Economic Journal, John Wiley & Sons, vol. 86(3), pages 1241-1266, January.
    9. Martins, Lurdes & Szrek, Helena, 2019. "The impact of the decision environment on consumer choice of mobile service plans: An experimental examination," Utilities Policy, Elsevier, vol. 56(C), pages 20-32.
    10. Griffin, Míde & Lyons, Sean & Mohan, Gretta & Joseph, Merin & Domhnaill, Ciarán Mac & Evans, John, 2022. "Intra-operator mobile plan switching: Evidence from linked survey and billing microdata," Telecommunications Policy, Elsevier, vol. 46(7).
    11. Lewlisa Saha & Hrudaya Kumar Tripathy & Soumya Ranjan Nayak & Akash Kumar Bhoi & Paolo Barsocchi, 2021. "Amalgamation of Customer Relationship Management and Data Analytics in Different Business Sectors—A Systematic Literature Review," Sustainability, MDPI, vol. 13(9), pages 1-35, May.
    12. Leandro Carvalho & Dan Silverman, 2024. "Complexity and Sophistication," Journal of Political Economy Microeconomics, University of Chicago Press, vol. 2(1), pages 43-76.

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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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