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Consumer behavior towards on-net/off-net price differentiation

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  • Haucap, Justus
  • Heimeshoff, Ulrich

Abstract

This paper explores how consumers react towards price differentiation between on-net and off-net calls in mobile telecommunications - a pricing policy that is common in many mobile telecommunications markets. Based on a survey of 1044 students it is demonstrated that some consumers may suffer from a "price differentiation bias", i.e., a fair number of consumers may overestimate the savings that result from reduced on-net and/or off-net charges, as they do not appear to weigh the prices with the probabilities of placing off-net and on-net calls. This may help to explain why it have been the smaller operators in various countries who have introduced on-net/off-net price differentiation. The paper also discusses the implications that such a consumer bias may have for market competition.

Suggested Citation

  • Haucap, Justus & Heimeshoff, Ulrich, 2011. "Consumer behavior towards on-net/off-net price differentiation," Telecommunications Policy, Elsevier, vol. 35(4), pages 325-332, May.
  • Handle: RePEc:eee:telpol:v:35:y:2011:i:4:p:325-332
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    References listed on IDEAS

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    Cited by:

    1. Mwakatumbula, Hilda J. & Moshi, GoodielC. & Mitomo, Hitoshi, 2015. "Consumer Awareness And Protection In Telecommunication Markets: Case Of Tanzania; Determinant Of Consumers’ Knowledge On Their Rights," 26th European Regional ITS Conference, Madrid 2015 127161, International Telecommunications Society (ITS).
    2. Haucap, Justus & Heimeshoff, Ulrich & Lange, Mirjam R. J., 2014. "The impact of tariff diversity on broadband diffusion: An empirical analysis," DICE Discussion Papers 156, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. repec:lmu:msmdpa:12688 is not listed on IDEAS
    4. Barth, Anne-Kathrin & Graf, Julia, 2011. "Irrationality rings! - Experimental evidence on mobile tariff choices," DICE Discussion Papers 36, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Orhan Dagli & Glenn P. Jenkins, 2015. "Consumer Preferences for Improvements in Mobile Telecommunication Services," Development Discussion Papers 2015-05, JDI Executive Programs.
    6. Muck, Johannes, 2012. "The Effect of On-net/Off-net Differentiation and Heterogeneous Consumers on Network Size in Mobile Telecommunications – An Agent-based Approach," 19th ITS Biennial Conference, Bangkok 2012: Moving Forward with Future Technologies - Opening a Platform for All 72477, International Telecommunications Society (ITS).
    7. Haucap, Justus, 2010. "Eingeschränkte Rationalität in der Wettbewerbsökonomie," DICE Ordnungspolitische Perspektiven 08, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    8. Gu, Yiquan & Wenzel, Tobias, 2012. "Transparency, entry, and productivity," Economics Letters, Elsevier, vol. 115(1), pages 7-10.
    9. Muck, Johannes, 2012. "The effect of on-net / off-net differentiation and heterogeneuous consumers on network size in mobile telecommunications : an agent-based aporoach," 23rd European Regional ITS Conference, Vienna 2012 60355, International Telecommunications Society (ITS).
    10. Karacuka, Mehmet & Çatık, A. Nazif & Haucap, Justus, 2013. "Consumer choice and local network effects in mobile telecommunications in Turkey," Telecommunications Policy, Elsevier, pages 334-344.
    11. Muck, Johannes, 2016. "Tariff-mediated network effects with incompletely informed consumers," DICE Discussion Papers 210, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    12. Clémence Christin, 2013. "Entry Deterrence Through Cooperative R&D Over-Investment," Recherches économiques de Louvain, De Boeck Université, vol. 79(2), pages 5-26.
    13. Zucchini, Leon & Claussen, Jörg & Trüg, Moritz, 2013. "Tariff-mediated network effects versus strategic discounting: Evidence from German mobile telecommunications," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 751-759.
    14. Mehmet Karacuka & Asad Zaman, 2012. "The empirical evidence against neoclassical utility theory: a review of the literature," International Journal of Pluralism and Economics Education, Inderscience Enterprises Ltd, vol. 3(4), pages 366-414.
    15. Stühmeier Torben & Wenzel Tobias, 2012. "Regulating Advertising in the Presence of Public Service Broadcasting," Review of Network Economics, De Gruyter, pages 1-23.
    16. Haucap, Justus & Herr, Annika & Frank, Björn, 2011. "In vino veritas: Theory and evidence on social drinking," DICE Discussion Papers 37, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    17. repec:lmu:msmdpa:13764 is not listed on IDEAS

    More about this item

    Keywords

    Mobile telecommunications Price discrimination;

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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