Arbeitspapier
Contracts, biases and consumption of access services
We consider a consumption model that takes into account the valuation and demand uncertainties that consumers face while using access services. Typical examples of such services include telecommunication services, extended warranties for consumer electronics, and club memberships. We demonstrate that consumption is affected by contract structure (pay-peruse vs. three part tariffs) even if the optimal consumption plans are identical. We find that a majority of individuals correctly use a threshold policy that is similar to a nearly optimal heuristic, however they use the free units too quickly leading to overconsumption and lost surplus. These errors are partially driven by mistaken beliefs about the value distribution. We also measure subjects' willingness to pay for a contract with free access units, and we find that nearly half of subjects are willing to pay at least the full per-unit price, with a substantial fraction willing to overpay. The optimal firm strategy is therefore to offer a contract that presells access units at a very small discount; this strategy increases revenue by 8 - 15% compared to only offering a pay-per-use contract.
- Language
-
Englisch
- Bibliographic citation
-
Series: CESifo Working Paper ; No. 3698
- Classification
-
Wirtschaft
Design of Experiments: Laboratory, Individual
Consumer Economics: Empirical Analysis
Production, Pricing, and Market Structure; Size Distribution of Firms
- Subject
-
access services
pricing contracts
decision biases
experiment
Konsumentenverhalten
Mehrwertdienst
Vertrag
Bias
Entscheidung
Betriebliche Preispolitik
Test
- Event
-
Geistige Schöpfung
- (who)
-
Leider, Stephen G.
Sahin, Özge
- Event
-
Veröffentlichung
- (who)
-
Center for Economic Studies and ifo Institute (CESifo)
- (where)
-
Munich
- (when)
-
2012
- Handle
- Last update
-
10.03.2025, 11:41 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Leider, Stephen G.
- Sahin, Özge
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2012
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