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Telecommunications Consumers: A Behavioural Economic Analysis

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  • Lunn, Pete

Abstract

This paper argues that telecommunications markets present the consumer with a decision-making environment that is particularly likely to be prone to established biases in consumer decision-making. The analysis identifies four properties of telecommunications markets, which in combination are probably unique and which may make the sector prey to biases identified by behavioural economics. The analysis offers a range of known behavioural phenomena that, first, may help to explain the generally low levels of switching between telecommunications providers and, second, could result in failure to select optimum contracts, because of inaccurate expectations of usage or time inconsistent preferences. While more research is required to assess the merit of these hypotheses, they raise the possibility that telecommunications markets may be inefficient and prone to less effective competition than many other consumer markets. Potential policy responses are also discussed.

Suggested Citation

  • Lunn, Pete, 2011. "Telecommunications Consumers: A Behavioural Economic Analysis," Papers WP417, Economic and Social Research Institute (ESRI).
  • Handle: RePEc:esr:wpaper:wp417
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    References listed on IDEAS

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    1. S. Dellavigna., 2011. "Psychology and Economics: Evidence from the Field," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
    2. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters,in: Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74 Edward Elgar Publishing.
    3. Chris M. Wilson & Catherine Waddams Price, 2010. "Do consumers switch to the best supplier?," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 647-668, October.
    4. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, March.
    5. Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 375-394.
    6. Hans-W. Micklitz & Lucia Reisch & Kornelia Hagen, 2011. "An Introduction to the Special Issue on “Behavioural Economics, Consumer Policy, and Consumer Law”," Journal of Consumer Policy, Springer, vol. 34(3), pages 271-276, September.
    7. Matthew Bennett & Unknown & Amelia Fletcher & Liz Hurley & David Ruck, 2010. "What Does Behavioral Economics Mean for Competition Policy?," CPI Journal, Competition Policy International, vol. 6.
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    Cited by:

    1. 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.
    2. Stefania Sitzia & Jiwei Zheng & Daniel Zizzo, 2015. "Inattentive consumers in markets for services," Theory and Decision, Springer, vol. 79(2), pages 307-332, September.

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    Keywords

    Policy/Telecommunications/Decision-making biases/Behavioural economics/Regulation;

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