Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock
By April 2013, the FCC's recent bill-shock agreement with cellular carriers requires consumers be notified when exceeding usage allowances. Will the agreement help or hurt consumers? To answer this question, we estimate a model of consumer plan choice, usage, and learning using a panel of cellular bills. Our model predicts that the agreement will lower average consumer welfare by $2 per year because firms will respond by raising monthly fees. Our approach is based on novel evidence that consumers are inattentive to past usage (meaning that bill-shock alerts are informative) and advances structural modeling of demand in situations where multipart tariffs induce marginal-price uncertainty. Additionally, our model estimates show that an average consumer underestimates both the mean and variance of future calling. These biases cost consumers $42 per year at existing prices. Moreover, absent bias, the bill-shock agreement would have little to no effect.
|Date of creation:||27 Feb 2012|
|Publication status:||published, American Economic Review, 2015, 105:1, 234-271|
|Contact details of provider:|| Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA|
Web page: http://fmwww.bc.edu/EC/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fabian Herweg & Konrad Mierendorff, 2011.
"Uncertain demand, consumer loss aversion, and flat-rate tariffs,"
ECON - Working Papers
012, Department of Economics - University of Zurich.
- Fabian Herweg & Konrad Mierendorff, 2013. "Uncertain Demand, Consumer Loss Aversion, And Flat-Rate Tariffs," Journal of the European Economic Association, European Economic Association, vol. 11(2), pages 399-432, 04.
- Herweg, Fabian, 2010. "Uncertain Demand, Consumer Loss Aversion, and Flat-Rate Tariffs," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 330, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Herweg, Fabian & Mierendorff, Konrad, 2013. "Uncertain Demand, Consumer Loss Aversion, and Flat-Rate Tariffs," Munich Reprints in Economics 19420, University of Munich, Department of Economics.
- Fabian Herweg, 2010. "Uncertain Demand, Consumer Loss Aversion, and Flat-Rate Tariffs," Bonn Econ Discussion Papers bgse14_2010, University of Bonn, Germany.
- Michael D. Grubb, 2009.
"Selling to Overconfident Consumers,"
American Economic Review,
American Economic Association, vol. 99(5), pages 1770-1807, December.
- Gourieroux, Christian & Monfort, Alain, 1993. "Simulation-based inference : A survey with special reference to panel data models," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 5-33, September.
- Kenneth Train, 2003.
"Discrete Choice Methods with Simulation,"
Online economics textbooks,
SUNY-Oswego, Department of Economics, number emetr2.
- Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
- Koichiro Ito, 2014.
"Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing,"
American Economic Review,
American Economic Association, vol. 104(2), pages 537-563, February.
- Koichiro Ito, 2012. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," NBER Working Papers 18533, National Bureau of Economic Research, Inc.
- Spiegler, Ran, 2014.
"Bounded Rationality and Industrial Organization,"
Oxford University Press, number 9780199334261.
- Benjamin R. Handel, 2011. "Adverse Selection and Switching Costs in Health Insurance Markets: When Nudging Hurts," NBER Working Papers 17459, National Bureau of Economic Research, Inc.
- Martin Gaynor & Yunfeng Shi & Rahul Telang & William Vogt, 2005. "Cell Phone Demand and Consumer Learning – An Empirical Analysis," Working Papers 05-28, NET Institute, revised Oct 2005.
- Ching, Andrew & Erdem, Tulin & Keane, Michael, 2007.
"The Price Consideration Model of Brand Choice,"
4686, University Library of Munich, Germany.
- Eugenio J. Miravete, 1995.
"Screening Consumers through Alternative Pricing Mechanisms,"
1145, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Miravete, Eugenio J, 1996. "Screening Consumers through Alternative Pricing Mechanisms," Journal of Regulatory Economics, Springer, vol. 9(2), pages 111-132, March.
- Pascal Courty & Li Hao, 2000.
Review of Economic Studies,
Oxford University Press, vol. 67(4), pages 697-717.
- Anja Lambrecht & Katja Seim & Bernd Skiera, 2007. "Does Uncertainty Matter? Consumer Behavior Under Three-Part Tariffs," Marketing Science, INFORMS, vol. 26(5), pages 698-710, 09-10.
- Tülin Erdem & Michael P. Keane, 1996. "Decision-Making Under Uncertainty: Capturing Dynamic Brand Choice Processes in Turbulent Consumer Goods Markets," Marketing Science, INFORMS, vol. 15(1), pages 1-20.
- Blundell, R. & Bond, S., 1995.
"Initial Conditions and Moment Restrictions in Dynamic Panel Data Models,"
104, Economics Group, Nuffield College, University of Oxford.
- Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
- Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
- R Blundell & Steven Bond, "undated". "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
- Seim, Katja & Viard, V. Brian, 2006.
"The Effect of Market Structure on Cellular Technology Adoption and Pricing,"
1876r, Stanford University, Graduate School of Business.
- Katja Seim & V. Brian Viard, 2011. "The Effect of Market Structure on Cellular Technology Adoption and Pricing," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 221-251, May.
- Minjung Park, 2011.
"The Economic Impact of Wireless Number Portability,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 59(4), pages 714-745, December.
- Minjung Park, 2005. "The Economic Impact of Wireless Number Portability," Discussion Papers 04-017, Stanford Institute for Economic Policy Research.
- Saurabh Bhargava & Vikram S. Pathania, 2013. "Driving under the (Cellular) Influence," American Economic Journal: Economic Policy, American Economic Association, vol. 5(3), pages 92-125, August.
- Ching-I Huang, 2008.
"Estimating demand for cellular phone service under nonlinear pricing,"
Quantitative Marketing and Economics (QME),
Springer, vol. 6(4), pages 371-413, December.
- Huang, Ching-I, 2007. "Estimating Demand for Cellular Phone Service under Nonlinear Pricing," MPRA Paper 6459, University Library of Munich, Germany.
- Cardon, James H & Hendel, Igal, 2001. "Asymmetric Information in Health Insurance: Evidence from the National Medical Expenditure Survey," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 408-427, Autumn.
- Gregory S. Crawford & Matthew Shum, 2005. "Uncertainty and Learning in Pharmaceutical Demand," Econometrica, Econometric Society, vol. 73(4), pages 1137-1173, 07.
When requesting a correction, please mention this item's handle: RePEc:boc:bocoec:829. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F Baum)
If references are entirely missing, you can add them using this form.