The Existence and Persistence of the Pay-Per-Use Bias in Car Sharing Services

40 Pages Posted: 16 Jul 2018 Last revised: 22 Jul 2020

See all articles by Katharina Dowling

Katharina Dowling

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Puneet Manchanda

University of Michigan, Stephen M. Ross School of Business

Martin Spann

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Date Written: July 21, 2020

Abstract

A key benefit of using car sharing services (relative to car ownership) is that they are more cost effective. Car sharing firms offer a menu of pricing plans to make this happen. The two most common plans are flat-rate and pay-per-use pricing. However, little is known about how consumers choose among these pricing plans. In this study, we analyze consumers’ choices between pay-per-use and flat-rate pricing using data from a car sharing provider in a large European city. In contrast to previous research, we find a prevalent and time-persistent pay-per-use bias. Specifically, depending on the definition of the bias, 21% to 32% of customers exhibit this bias. This bias also persists over time within customer. We propose three potential explanations for the existence and persistence of this bias. First, we suggest that customers underestimate their usage. Second, we propose that customers have a preference for flexibility, leading them to pay more. Finally, we show that the physical context, such as weather, increases the likelihood of a pay-per-use bias. Our findings suggest that more research into consumer response to pricing in the Sharing Economy is needed.

Keywords: Sharing Economy, Car sharing, Pricing, Pay-per-use Bias, Flat-rate Bias

JEL Classification: M31

Suggested Citation

Dowling, Katharina and Manchanda, Puneet and Spann, Martin, The Existence and Persistence of the Pay-Per-Use Bias in Car Sharing Services (July 21, 2020). Available at SSRN: https://ssrn.com/abstract=3204233 or http://dx.doi.org/10.2139/ssrn.3204233

Katharina Dowling (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Ludwigstr. 28
Munich, 80539
Germany

Puneet Manchanda

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-936-2445 (Phone)
734-936-8716 (Fax)

Martin Spann

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Ludwigstr. 28
Munich, 80539
Germany

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