The Doubtful Profitability of Foggy Pricing

NET Institute Working Paper No. 04-07

30 Pages Posted: 15 Nov 2004

See all articles by Eugenio J. Miravete

Eugenio J. Miravete

University of Texas at Austin; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2004

Abstract

This paper studies whether competition may induce firms abandoning deceptive pricing strategies aimed to profit from mistaken choices of consumers. The empirical analysis focuses on the pricing practices of early U.S. cellular firms, both under monopoly and duopoly. Foggy tariff options are those that are dominated by another option or a combination of other tariff options offered by the firm. I also define a measure of fogginess of non-dominated tariffs based on the range of airtime usage for which they are the least expensive option among those available. Results indicate that firms offer more dominated tariff options in a competitive market than under monopoly. While markets are profitable, perhaps because they grow or because firms collude, the use of foggy tactics is not frequent. However, if the market is more mature, or if firms do not cooperate, thus reducing the return to their investment, then they commonly turn to foggy pricing.

Keywords: Nonlinear pricing, foggy strategies, co-opetition

Suggested Citation

Miravete, Eugenio J., The Doubtful Profitability of Foggy Pricing (October 2004). NET Institute Working Paper No. 04-07, Available at SSRN: https://ssrn.com/abstract=618465 or http://dx.doi.org/10.2139/ssrn.618465

Eugenio J. Miravete (Contact Author)

University of Texas at Austin ( email )

Department of Economics
1 University Station C3100
Austin, TX 78712-0301
United States
512-232-1718 (Phone)
512-471-3510 (Fax)

HOME PAGE: http://www.eco.utexas.edu/facstaff/Miravete

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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