Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock
American Economic Review
vol. 105,
no. 1, January 2015
(pp. 234-71)
Abstract
Following FCC pressure to end bill shock, cellular carriers now alert customers when they exceed usage allowances. We estimate a model of plan choice, usage, and learning using a 2002-2004 panel of cellular bills. Accounting for firm price adjustment, we predict that implementing alerts in 2002-2004 would have lowered average annual consumer welfare by $33. We show that consumers are inattentive to past usage, meaning that bill-shock alerts are informative. Additionally, our estimates imply that consumers are overconfident, underestimating the variance of future calling. Overconfidence costs consumers $76 annually at 2002-2004 prices. Absent overconfidence, alerts would have little to no effect. (JEL D12, D18, L11, L96, L98)Citation
Grubb, Michael D., and Matthew Osborne. 2015. "Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock." American Economic Review, 105 (1): 234-71. DOI: 10.1257/aer.20120283Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D18 Consumer Protection
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L96 Telecommunications
- L98 Industry Studies: Utilities and Transportation: Government Policy