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Ex Post vs. Ex Ante Pricing: Optional Calling Plans and Tapered Tariffs

Author

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  • Clay, Karen B
  • Sibley, David S
  • Srinagesh, Padmanabhan

Abstract

The authors study optimal nonuniform pricing in a setting where a customer's demand at the start of a billing period contains a random variable whose realization becomes known by the end of the billing period. In this context, an optional calling plan is a tariff which the consumer must select based on his/her expectations about the random variable, whereas, under a tapered tariff, the consumer's choice of usage charge is made after he/she knows the realization of the random variable. They show that for low to moderate levels of uncertainty about the random variable entering the demand function, the optional calling plan approach to nonuniform pricing yields higher expected profit than does the tapered tariff approach, given risk-neutral consumers. They illustrate this finding with a case study and argue that it is consistent with the historical evolution of tariffs in the interexchange telecommunications market. Copyright 1992 by Kluwer Academic Publishers

Suggested Citation

  • Clay, Karen B & Sibley, David S & Srinagesh, Padmanabhan, 1992. "Ex Post vs. Ex Ante Pricing: Optional Calling Plans and Tapered Tariffs," Journal of Regulatory Economics, Springer, vol. 4(2), pages 115-138, June.
  • Handle: RePEc:kap:regeco:v:4:y:1992:i:2:p:115-38
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    Citations

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    Cited by:

    1. Michael Kremer, Christopher M. Snyder & Christopher M. Snyder, 2013. "When Is Prevention More Profitable than Cure? The Impact of Time-Varying Consumer Heterogeneity - Working Paper 334," Working Papers 334, Center for Global Development.
    2. Benjamin A. Olken & Patrick Barron, 2009. "The Simple Economics of Extortion: Evidence from Trucking in Aceh," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 417-452, June.
    3. 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).
    4. Michael Kremer & Christopher Snyder, 2015. "Preventives Versus Treatments," NBER Working Papers 21012, National Bureau of Economic Research, Inc.
    5. Eugenio J. Miravete, 2002. "Estimating Demand for Local Telephone Service with Asymmetric Information and Optional Calling Plans," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 943-971.
    6. Gérard P. Cachon & Pnina Feldman, 2011. "Pricing Services Subject to Congestion: Charge Per-Use Fees or Sell Subscriptions?," Manufacturing & Service Operations Management, INFORMS, vol. 13(2), pages 244-260, June.
    7. Shy, Oz, 2008. "Measuring the cost of making payment decisions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(6), pages 2411-2416, December.
    8. Miravete, Eugenio J, 2000. "Choosing the Wrong Calling Plan? Ignorance, Learning, and Risk Aversion," CEPR Discussion Papers 2562, C.E.P.R. Discussion Papers.
    9. Eugenio J. Miravete, "undated". "Quantity Discounts for Taste-Varying Consumers," CARESS Working Papres 99-11, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
    10. Miravete, Eugenio J, 2001. "Quantity Discounts for Time-Varying Consumers," CEPR Discussion Papers 2699, C.E.P.R. Discussion Papers.
    11. Miravete, Eugenio J, 1996. "Screening Consumers through Alternative Pricing Mechanisms," Journal of Regulatory Economics, Springer, vol. 9(2), pages 111-132, March.
    12. Inderst, Roman & Peitz, Martin, 2012. "Informing consumers about their own preferences," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 417-428.
    13. Marco Battaglini, 2005. "Long-Term Contracting with Markovian Consumers," American Economic Review, American Economic Association, vol. 95(3), pages 637-658, June.
    14. Eugenio J. Miravete, 2003. "Choosing the Wrong Calling Plan? Ignorance and Learning," American Economic Review, American Economic Association, vol. 93(1), pages 297-310, March.
    15. Adib Bagh & Hemant K. Bhargava, 2013. "How to Price Discriminate When Tariff Size Matters," Marketing Science, INFORMS, vol. 32(1), pages 111-126, August.
    16. Michael Kremer & Christopher M. Snyder, 2013. "When Is Prevention More Profitable than Cure? The Impact of Time-Varying Consumer Heterogeneity," NBER Working Papers 18862, National Bureau of Economic Research, Inc.
    17. Miravete, Eugenio J., 2011. "Convolution and composition of totally positive random variables in economics," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 479-490.
    18. Erzo F.P. Luttmer & Richard J. Zeckhauser, 2008. "Schedule Selection by Agents: from Price Plans to Tax Tables," NBER Working Papers 13808, National Bureau of Economic Research, Inc.
    19. Choi, Hyun-Woo & Kim, In Joon & Kim, Tong Suk, 2002. "Contingent claims valuation of optional calling plan contracts in telephone industry," International Review of Financial Analysis, Elsevier, vol. 11(4), pages 433-448.
    20. Michael Kremer & Christopher Snyder, 2004. "Why is There No AIDS Vaccine?," CID Working Papers 111, Center for International Development at Harvard University.
    21. Kremer, Michael & Snyder, Christopher, 2015. "Vaccines vs. Preventives," CEPR Discussion Papers 10474, C.E.P.R. Discussion Papers.

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