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Uncertain Demand, Consumer Loss Aversion, and Flat-Rate Tariffs

Title data

Herweg, Fabian ; Mierendorff, Konrad:
Uncertain Demand, Consumer Loss Aversion, and Flat-Rate Tariffs.
In: Journal of the European Economic Association. Vol. 11 (April 2013) Issue 2 . - pp. 399-432.
ISSN 1542-4774
DOI: https://doi.org/10.1111/jeea.12004

Official URL: Volltext

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Abstract in another language

We consider a model of firm pricing and consumer choice, where consumers are loss averse and uncertain about their future demand. Possibly, consumers in our model prefer a flat rate to a measured tariff, even though this choice does not minimize their expected billing amount—a behavior in line with ample empirical evidence. We solve for the profit-maximizing two-part tariff, which is a flat rate if (a) marginal costs are not too high, (b) loss aversion is intense, and (c) there are strong variations in demand. Moreover, we analyze the optimal nonlinear tariff. This tariff has a large flat part when a flat rate is optimal among the class of two-part tariffs.

Further data

Item Type: Article in a journal
Refereed: Yes
Keywords: Consumers' preferences research; pricing; profit; consumer behavior; consumer attitudes
Institutions of the University: Faculties
Faculties > Faculty of Law, Business and Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics VIII: International Competition Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics VIII: International Competition Economics > Chair Economics VIII: International Competition Economics - Univ.-Prof. Dr. Fabian Herweg
Profile Fields > Emerging Fields > Innovation and Consumer Protection
Profile Fields
Profile Fields > Emerging Fields
Result of work at the UBT: No
DDC Subjects: 300 Social sciences > 330 Economics
Date Deposited: 11 Feb 2015 09:20
Last Modified: 01 Dec 2017 07:42
URI: https://eref.uni-bayreuth.de/id/eprint/6671