Business Research | 2010
Authors:
DOI: 10.1007/BF03342716
Journal: Business Research
Year: 2010
Publisher: Springer
Document Type: Article
Open Access: All Open Access; Gold Open Access; Green Open Access
Cited by: 7
For many services, consumers can choose among a range of optional tariffs that differ in their access and usage prices. Recent studies indicate that tariff-specific preferences may lead consumers to choose a tariff that does not minimize their expected billing rate. This study analyzes how tariff-specific preferences influence the responsiveness of consumers’ usage and tariff choice to changes in price. We show that consumer heterogeneity in tariff-specific preferences leads to heterogeneity in their sensitivity to price changes. Specifically, consumers with tariff-specific preferences are less sensitive to price increases of their preferred tariff than other consumers. Our results provide an additional reason why firms should offer multiple tariffs rather than a uniform nonlinear pricing plan to extract maximum consumer surplus. © 2010, The Author(s).
flat rate; flat-rate bias; nonlinear pricing; pay-per-use bias; price elasticity; pricing; tariff choice; tariff-specific preferences; three-part tariffs