Complex Pricing and Consumer-Side Attention

32 Pages Posted: 7 Jan 2021

See all articles by Christian Fischer

Christian Fischer

Heinrich Heine University Dusseldorf; University of Bayreuth - Department of Economics

Alexander Rasch

Duesseldorf Institute for Competition Economics (DICE); ZEW – Leibniz Centre for European Economic Research

Tobias Wenzel

University of Sheffield

Date Written: 2020

Abstract

This paper analyzes a market in which two horizontally differentiated firms compete by setting menus of two-part tariffs, and in which some consumers are not informed about the linear per-unit price component. We consider two regulatory interventions that limit firms’ ability to price discriminate: (i) diminishing the range of contracts via a reduction in the number of two-part tariffs offered (which prohibits inter-group price discrimination), and (ii) a reduction in tariff complexity via the abolishment of linear fees (which prohibits inter-and intra-group price discrimination). We characterize the effects of these interventions on firm profits and (informed and uninformed) consumer welfare, and identify conditions for the optimal policy. Our results provide insights for the evaluation of recent policy interventions (e.g., the regulation of roaming charges in the EU market).

Keywords: Two-part tariffs; Consumer attention; Policy intervention

JEL Classification: D43; L13; L42

Suggested Citation

Fischer, Christian and Rasch, Alexander and Wenzel, Tobias, Complex Pricing and Consumer-Side Attention (2020). ZEW - Centre for European Economic Research Discussion Paper No. 20-075, Available at SSRN: https://ssrn.com/abstract=3761683 or http://dx.doi.org/10.2139/ssrn.3761683

Christian Fischer (Contact Author)

Heinrich Heine University Dusseldorf ( email )

Universitätsstrasse 1
Duesseldorf, DE NRW 40225
Germany

University of Bayreuth - Department of Economics ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

Alexander Rasch

Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitätsstraße 1
Dusseldorf, 40225
Germany

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Tobias Wenzel

University of Sheffield

17 Mappin Street
Sheffield, S1 4DT
United Kingdom

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