Estimating the Demand for Service Bundles Under Three‐Part Tariffs

36 Pages Posted: 28 May 2020

See all articles by Liang Chen

Liang Chen

Wuhan University

Yao Luo

University of Toronto - Department of Economics

Ping Xiao

Deakin University

Multiple version iconThere are 2 versions of this paper

Date Written: September‐December 2019

Abstract

Consumers may face demand uncertainty when choosing a service plan under three‐part tariffs, and preferences for multiple services may be inter‐dependent. To examine such a demand system, we construct a two‐stage discrete/continuous choice model for service bundles, allowing for interactive utility and preference correlations. Implementing a piecewise maximization approach to consumers’ non‐differentiable utility maximization problem, we estimate the model via simulated method of moments. We empirically illustrate the model using data from a Chinese wireless service provider. Our counterfactual analysis shows that the three‐part tariffs with interchangeable units show no significant loss of revenue, compared to existing tariffs.

Suggested Citation

Chen, Liang and Luo, Yao and Xiao, Ping, Estimating the Demand for Service Bundles Under Three‐Part Tariffs (September‐December 2019). The Journal of Industrial Economics, Vol. 67, Issue 3-4, pp. 448-483, 2019, Available at SSRN: https://ssrn.com/abstract=3609426 or http://dx.doi.org/10.1111/joie.12206

Liang Chen (Contact Author)

Wuhan University ( email )

Wuhan
China

Yao Luo

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

Ping Xiao

Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

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