Abstract

http://ssrn.com/abstract=1799985
 
 

Citations (4)



 


 



Uncertain Demand, Consumer Loss Aversion, and Flat-Rate Tariffs


Fabian Herweg


University of Bayreuth - Department of Law and Economics

Konrad Mierendorff


University of Zurich

March 23, 2011


Abstract:     
We consider a model of firm pricing and consumer choice, where consumers are loss averse and uncertain about their future demand. Possibly, consumers in our model prefer a flat rate to a measured tariff, even though this choice does not minimize their expected billing amount - a behavior in line with ample empirical evidence. We solve for the profit-maximizing two-part tariff, which is a flat rate if (a) marginal costs are not too high, (b) loss aversion is intense, and (c) there are strong variations in demand. Moreover, we analyze the optimal nonlinear tariff. This tariff has a large flat part when a flat rate is optimal among the class of two-part tariffs.

Number of Pages in PDF File: 54

Keywords: Consumer Loss Aversion, Flat-Rate Tariffs, Nonlinear Pricing, Uncertain Demand

JEL Classification: D11, D43, L11

working papers series


Download This Paper

Date posted: April 7, 2011  

Suggested Citation

Herweg, Fabian and Mierendorff, Konrad, Uncertain Demand, Consumer Loss Aversion, and Flat-Rate Tariffs (March 23, 2011). Available at SSRN: http://ssrn.com/abstract=1799985 or http://dx.doi.org/10.2139/ssrn.1799985

Contact Information

Fabian Herweg (Contact Author)
University of Bayreuth - Department of Law and Economics ( email )
Universitätsstraße 30
Bayreuth, 95447
Germany
Konrad Mierendorff
University of Zurich ( email )
Rämistrasse 71
Zürich, CH-8006
Switzerland
HOME PAGE: http://www.econ.uzh.ch/faculty/mierendorff.html
Feedback to SSRN


Paper statistics
Abstract Views: 710
Downloads: 79
Download Rank: 176,047
Citations:  4

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.406 seconds