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Multipart tariffs and bounded rationality: An experimental analysis of mobile phone plan choices

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  • Friesen, Lana
  • Earl, Peter E.

Abstract

Multipart tariff structures add to the computational challenges in choosing mobile phone connection services. We study the quality of decision making in a laboratory environment where consumers only face a small set of mobile phone plan options but have to contend with different degrees of tariff complexity as well as uncertain usage. Our main finding is that simply eliminating the multipart tariff structure does not necessarily lead to better decisions. Rather it is multipart tariffs with included values in excess of monthly fees, thus entailing two-tier pricing structures with increasing marginal costs, which lead to the worst decisions. Knowledgeable participants, who understand mobile phone plan pricing, make significantly better choices.

Suggested Citation

  • Friesen, Lana & Earl, Peter E., 2015. "Multipart tariffs and bounded rationality: An experimental analysis of mobile phone plan choices," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 239-253.
    • Handle: RePEc:eee:jeborg:v:116:y:2015:i:c:p:239-253
    DOI: 10.1016/j.jebo.2015.04.016
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    Cited by:

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    2. Jin, Haofeng, 2022. "The effect of overspending on tariff choices and customer churn: Evidence from mobile plan choices," Journal of Retailing and Consumer Services, Elsevier, vol. 66(C).
    3. Griffin, Míde & Lyons, Sean & Mohan, Gretta & Joseph, Merin & Domhnaill, Ciarán Mac & Evans, John, 2022. "Intra-operator mobile plan switching: Evidence from linked survey and billing microdata," Telecommunications Policy, Elsevier, vol. 46(7).
    4. Hector Sandoval & Pedro Hancevic & Hernán Bejarano, 2024. "The Hidden Costs of Tariff Misclassification: Structural Winners and Losers," Working Papers DTE 637, CIDE, División de Economía.
    5. Mary-Alice Doyle, 2018. "Consumer Credit Card Choice: Costs, Benefits and Behavioural Biases," RBA Research Discussion Papers rdp2018-11, Reserve Bank of Australia.
    6. 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.
    7. Gerpott, Torsten J. & Meinert, Phil, 2018. "Termination notice of mobile network operator customers after a tariff switch: An empirical study of postpaid subscribers in Germany," Telecommunications Policy, Elsevier, vol. 42(3), pages 212-226.
    8. Leandro Carvalho & Dan Silverman, 2019. "Complexity and Sophistication," NBER Working Papers 26036, National Bureau of Economic Research, Inc.
    9. Earl, Peter E. & Friesen, Lana & Shadforth, Christopher, 2019. "Elusive optima: A process tracing analysis of procedural rationality in mobile phone connection plan choices," Journal of Economic Behavior & Organization, Elsevier, vol. 161(C), pages 303-322.
    10. Lana Friesen & Peter E. Earl, 2020. "An Experimental Analysis of Regulatory Interventions for Complex Pricing," Southern Economic Journal, John Wiley & Sons, vol. 86(3), pages 1241-1266, January.
    11. Martins, Lurdes & Szrek, Helena, 2019. "The impact of the decision environment on consumer choice of mobile service plans: An experimental examination," Utilities Policy, Elsevier, vol. 56(C), pages 20-32.
    12. Lewlisa Saha & Hrudaya Kumar Tripathy & Soumya Ranjan Nayak & Akash Kumar Bhoi & Paolo Barsocchi, 2021. "Amalgamation of Customer Relationship Management and Data Analytics in Different Business Sectors—A Systematic Literature Review," Sustainability, MDPI, vol. 13(9), pages 1-35, May.

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    More about this item

    Keywords

    Complexity; Laboratory experiments; Mobile phone pricing; Nonlinear pricing; Cellular;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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