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The Doubtful Profitability of Foggy Pricing

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This paper studies whether competition may induce firms abandoning deceptive pricing strategies aimed to profit from mistaken choices of consumers. The empirical analysis focuses on the pricing practices of early U.S. cellular firms, both under monopoly and duopoly. Foggy tariff options are those that are dominated by another option or a combination of other tariff options offered by the firm. I also define a measure of fogginess of non-dominated tariffs based on the range of airtime usage for which they are the least expensive option among those available. Results indicate that firms offer more dominated tariff options in a competitive market than under monopoly. While markets are profitable, perhaps because they grow or because firms collude, the use of foggy tactics is not frequent. However, if the market is more mature, or if firms do not cooperate, thus reducing the return to their investment, then they commonly turn to foggy pricing.

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  • Eugenio J. Miravete, 2004. "The Doubtful Profitability of Foggy Pricing," Working Papers 04-07, NET Institute.
  • Handle: RePEc:net:wpaper:0407
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    Cited by:

    1. Patrick Xavier & Dimitri Ypsilanti, 2010. "Behavioral Economics and Telecommunications Policy," Chapters, in: Anastassios Gentzoglanis & Anders Henten (ed.), Regulation and the Evolution of the Global Telecommunications Industry, chapter 4, Edward Elgar Publishing.
    2. Eugenio J. Miravete, 2009. "Competing with Menus of Tariff Options," Journal of the European Economic Association, MIT Press, vol. 7(1), pages 188-205, March.
    3. 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.

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    More about this item

    Keywords

    Nonlinear Pricing; Foggy Strategies; Co-opetition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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