Tariff-Specific Preferences and Their Influence on Price Sensitivity

BuR Business Research Journal, Vol. 3, No. 1, May 2010

11 Pages Posted: 14 Jun 2010  

Agnieszka Wolk

Independent

Bernd Skiera

University of Frankfurt - Department of Marketing

Date Written: May 18, 2010

Abstract

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.

Keywords: pricing, nonlinear pricing, tariff choice, tariff-specific preferences, price elasticity, flat rate, three-part tariffs, flat-rate bias, pay-per-use bias

Suggested Citation

Wolk, Agnieszka and Skiera, Bernd, Tariff-Specific Preferences and Their Influence on Price Sensitivity (May 18, 2010). BuR Business Research Journal, Vol. 3, No. 1, May 2010. Available at SSRN: https://ssrn.com/abstract=1624771

Agnieszka Wolk

Independent ( email )

No Address Available

Bernd Skiera (Contact Author)

University of Frankfurt - Department of Marketing ( email )

Theodor-Adorno-Platz 4
Frankfurt am Main, 60323
Germany
+49 69 798 34640 (Phone)
+49 69 798 35001 (Fax)

HOME PAGE: http://www.skiera.de

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