An experimental analysis of overconfidence in tariff choice

Consumers regularly have to choose between a pay-per-use and a flat-rate option. Due to the increasing number and range of (digital) services, the frequency at which consumers have to make tariff-choice decisions to use these services has become even more prevalent. Prior work has demonstrated that consumers’ tariff choices are often systematically biased and identified overconfidence as one of the key drivers. Yet, prior research is non-experimental and focused on the so-called flat-rate bias. By contrast, we examine the effects of overconfidence on the choice between a pay-per-use and a flat-rate option using an experimental approach. We develop an incentive-compatible experiment to provide causal evidence for the effect of overconfidence on tariff-choice decisions. We find that overconfident (underconfident) consumers underestimate (overestimate) their actual usage, which leads them to choose a pay-per-use (flat-rate) option relatively more frequently. Based on the results, we discuss theoretical and managerial implications as well as avenues for future research.

Pricing Metrics and the Importance of Minimum and Billing Increments

Service providers often use minimum increments and billing increments to charge for higher usage than customers’ true usage. Despite their popularity in business practice, research has largely ignored these increments and assumed that charged usage always equals true usage. We develop an overcharging index that represents the extent to which a customer is charged for units that she or he did not use and identify situations in which the overcharging index is particularly high. In three empirical studies in the highly competitive telecommunication market, we demonstrate that providers are increasingly using longer minimum and billing increments. These increments yield an average overcharge of true usage of 43.79% for customers with long increments. These increments generate additional revenues that are responsible for almost two thirds (66.2%) of the operating profits of the main providers in Germany and the United States. Customers, particularly those who are less educated, seem to not understand minimum and billing increments well, do not adjust their behavior to different increments, and often make tariff choice errors unsystematically.

How price fairness and fit affect customer tariff evaluations

Purpose Promotional cues related to notions of fair prices or pricing designed to fit consumers’ needs are prevalent for many service offers. The purpose of this paper is to investigate how both customers’ price fairness and idiosyncratic fit perceptions shape their tariff evaluations. Design/methodology/approach Two experimental studies involving different tariff types and service contexts test the complex interplay of customers’ perceived price fairness and idiosyncratic fit with customer and context characteristics on their tariff evaluations. Findings Customers judge tariffs drawing on both the perceived price fairness and idiosyncratic fit, driven by the perceived price level of the tariff and the perceived pricing transparency of the firm. Customers’ service usage and consumption goals moderate these effects: heavy users and hedonic consumers indicate lower price sensitivity while focusing more on their transparency perception. The role of perceived price fairness and idiosyncratic fit for tariff choice depends on the tariff/service context; idiosyncratic fit is important when it is incidental (e.g. flat rates) rather than intentional (i.e. customized tariffs) and when customers lack the expertise or confidence to evaluate price fairness such as in the case of relatively new services. Originality/value Prior studies focused on either price fairness or idiosyncratic fit and thus cannot fully explain the complex interplay between both in the context of tariff choice. This paper explicates the conditions that affect the relative importance of both concepts and under which incidental offers are better received than premeditated ones.

Tariff choice of online contents based on usage goal and self-control: can I control myself?

Purpose – People can easily track and understand their usage pattern for any content (e.g. movies, games) or service (e.g. card payment, cell phone usage) by using technologies such as the internet and smart phones. When consumers evaluate their past consumption patterns, they may experience two different kinds of regret: content-based or monetary-based. The purpose of this paper is to propose that perceived self-control, defined as the extent to which people believe they can control their usage, plays a moderating role in the tariff-choice process (flatrate vs pay-per-use) for two types of content: vice-based and virtue-based. Design/methodology/approach – Two laboratory experiments were designed to test the hypotheses. There were a total of 200 participants (86 for Experiment 1 and 114 for Experiment 2) who completed the entire experimental process (i.e. stimulus exposure, questionnaire reporting, dependent variable measurement, manipulation of the independent variables, and control checks). Findings – The results of this research provide evidence supporting the role of perceived self-control in tariff preference by showing that preference varies between flat-rate and pay-per-use tariff options. Specifically, virtue-based content users were more likely to prefer the pay-per-use tariff when their perceived self-control was low vs when it was high. In contrast, vice-based content users were more likely to prefer the flat-rate tariff when their perceived self-control was low vs when it was high. Originality/value – There are three contributions of the present research. First, the authors investigated the effect of content type on tariff preference. Second, the authors suggest that there is a moderating effect of perceived self-control on tariff preference. Third, this study revealed the factors affecting consumers’ perceived self-control.