Consumers' Freedom of Choice: Lessons from the Cellular Market
Bar-Ilan University - Faculty of Law
April 16, 2009
Consumers choosing a cellular calling plan typically have many options to choose from. While the number of firms may be small, each offers a large number of calling plans, each one dealing with many options for each of the different types of services included in the contract (voice communication, text messages, video and media offering, and more). The variety offered is usually seen as creating room for choice, something consumers value highly.
In this paper we investigate the cognitive load induced by what may be called 'hyper-choice' conditions in the cellular market. Assessing all of the different options requires mental effort, and from a certain point most humans' ability to actually compare offerings - diminishes.
We survey the psychological literature on cognitive overload, review experiments and empirical studies relevant to choice generally and the telecom market specifically, and apply them to current cellular markets.
Is the large number of alternatives to consider actually detrimental to consumers? Overly large variety may serve as a way to confuse consumers and steer them towards options preferred by the offering firms, who are aware of cognitive biases and use them to construct optimal (for them) contracts. Competition between such firms suffers as a result - consumers' ability to compare among them is low, and their ability to tacitly collude increases.
Two legal implications are discussed: consumer protection and antitrust law.
Number of Pages in PDF File: 45
Keywords: Cellular, cognitive overload, heuristics and biases, antitrust, consumer protection
JEL Classification: D1, D4, K2, L1, L4, L96working papers series
Date posted: April 16, 2009 ; Last revised: June 29, 2009
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