File(s) under permanent embargo
Does uncertainty matter? Consumer behavior under three-part tariffs
journal contribution
posted on 2007-09-01, 00:00 authored by A Lambrecht, K Seim, Bernd SkieraBernd SkieraIn communication, information, and other industries, three-part tariffs are increasingly popular. A three-part tariff is defined by an access price, an allowance, and a marginal price for any usage in excess of the allowance. Empirical nonlinear pricing studies have focused on consumer choice under two-part tariffs. We show that consumer behavior differs under three-part tariffs and assess how consumer demand uncertainty impacts tariff choice. We develop a discrete/continuous model of choice among three-part tariffs and estimate it using consumer-level data on Internet usage. Our model extends prior work in accommodating consumer switching to competitors, thereby capturing behavior in competitive industries more accurately. Our empirical work shows that demand uncertainty is a key driver of choice among three-part tariffs. Consumers' expected bill increases with the variation in their usage, steering them toward tariffs with high allowances. Consequently, demand uncertainty decreases consumer surplus and increases provider revenue. A further analysis of consumers' responsiveness to the different elements of a three-part tariff under the provider's current pricing structure reveals that prices affect a consumer's tariff choice more than her usage quantity and that the allowance plays a strong role in consumer tariff choice. Based on our results, we derive implications for pricing with three-part tariffs.
History
Journal
Marketing scienceVolume
26Issue
5Pagination
698 - 710Publisher
Institute for Operations Research and the Management Sciences (INFORMS)Location
Catonsville, Md.Publisher DOI
ISSN
0732-2399eISSN
1526-548XLanguage
engPublication classification
C1.1 Refereed article in a scholarly journalCopyright notice
2007, INFORMSUsage metrics
Categories
No categories selectedKeywords
Licence
Exports
RefWorks
BibTeX
Ref. manager
Endnote
DataCite
NLM
DC