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Are all those Calling Plans Really Necessary? The Limited Gains From Complex Tariffs

  • Miravete, Eugenio J

This Paper uses an equilibrium model of nonlinear pricing to determine the magnitude of foregone rents due to the implementation of simplified screening mechanisms. I then study the distribution of these foregone rents conditional on observable characteristics of a large sample of independent cellular telephone markets. Estimates reveal that the sample mean of foregone profits for not offering an additional tariff option amounts only to $0.33 (1986 dollars) per subscriber although this amount declines to $0.13 if cellular carriers already offer three tariff options. But these foregone profits only represent 4% and 0.6% of the profits attainable with a fully nonlinear tariff, respectively. The evidence presented in this Paper suggests that, contrary to the current common practice, firms should only offer few tariff options if the product development costs of designing them are non-negligible.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4237.

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Date of creation: Feb 2004
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Handle: RePEc:cpr:ceprdp:4237
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  1. Auerbach, Alan J & Pellechio, Anthony J, 1978. "The Two-Part Tariff and Voluntary Market Participation," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 571-87, November.
  2. Miravete, Eugenio J & Röller, Lars-Hendrik, 2003. "Competitive Non-Linear Pricing in Duopoly Equilibrium: The Early US Cellular Telephone Industry," CEPR Discussion Papers 4069, C.E.P.R. Discussion Papers.
  3. James G. MacKinnon & Halbert White, 1983. "Some Heteroskedasticity Consistent Covariance Matrix Estimators with Improved Finite Sample Properties," Working Papers 537, Queen's University, Department of Economics.
  4. Phillip Leslie, 2004. "Price Discrimination in Broadway Theater," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 520-541, Autumn.
  5. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826, March.
  6. Eugenio J. Miravete, 2005. "The Welfare Performance Of Sequential Pricing Mechanisms ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1321-1360, November.
  7. Dionissis Dimopoulos, 1981. "Pricing Schemes for Regulated Enterprises and Their Welfare Implications in the Case of Electricity," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 185-200, Spring.
  8. Meghan R. Busse, 2000. "Multimarket Contact and Price Coordination in the Cellular Telephone Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 287-320, 06.
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