The Effects of Information Nudges on Consumer Usage of Digital Services under Three-Part Tariffs

Abstract

We develop a dynamic model to examine how information nudges influence digital services' consumer usage behavior and welfare under a three-part tariff structure. We study two types of information nudging: nudging through full and nudging through partial information provision. In the former, information nudges are provided to inform consumers of their usage status at every decision point in a billing cycle. In contrast, in the latter, consumers are nudged at one or more decision points within a billing cycle but not throughout the billing cycle. Our model considers two dimensions of consumer heterogeneity: inattentiveness and preference. Furthermore, our model investigates an important but under-investigated design element of information nudges, namely, the timing of the information nudges. We find that (1) nudging through information provision influences inattentive consumers’ usage decisions and improves consumption efficiency, (2) consumers’ welfare gains from full information nudging depict an inverted-U shape contingent on consumers’ preference heterogeneity, and (3) the timing of nudging matters. Our findings provide managerial implications for the design of information nudging strategies and procedures. Finally, we empirically illustrate the analytical results in the context of consumers’ mobile data usage behavior.

Keywords: nudge, behavioral economics, limited attention, preference heterogeneity, three-part tariff, mobile data, digital services