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

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  • Miravete, Eugenio

Abstract

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.

Suggested Citation

  • Miravete, Eugenio, 2004. "Are all those Calling Plans Really Necessary? The Limited Gains From Complex Tariffs," CEPR Discussion Papers 4237, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4237
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    References listed on IDEAS

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    Cited by:

    1. Diaw, K. & Pouyet, J., 2004. "Competition, Incomplete Discrimination and Versioning," Discussion Paper 2004-69, Tilburg University, Center for Economic Research.
    2. David S. Evans & Michael Salinger, 2005. "Curing Sinus Headaches and Tying Law: An Empirical Analysis of Bundling Decongestants and Pain Relievers," CESifo Working Paper Series 1519, CESifo.
    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.
    4. Eugenio J. Miravete, 2004. "The Doubtful Profitability of Foggy Pricing," Working Papers 04-07, NET Institute.
    5. Hunold, Matthias & Laitenberger, Ulrich & Licht, Georg & Nikogosian, Vigen & Stenzel, André & Ullrich, Hannes & Wolf, Christoph, 2011. "Modernisierung der Konzentrationsberichterstattung: Endbericht," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 110525.
    6. Khaled Diaw & Jérôme Pouyet, 2005. "Information, competition and (In) complete discrimination," Working Papers hal-00243025, HAL.
    7. David S. Evans & Michael Salinger, 2004. "An Empirical Analysis of Bundling and Tying: Over-the-Counter Pain Relief and Cold Medicines," CESifo Working Paper Series 1297, CESifo.

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    More about this item

    Keywords

    Multipart tariffs; Imperfect screening; Foregone welfare;
    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

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