UBC Theses and Dissertations

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UBC Theses and Dissertations

Pricing and consumer behavior in the wireless telecommunications industry von Wartburg, Markus


The wireless telecommunications industry has seen extraordinary growth over the last decade and associated with the widespread adoption of wireless phone service are peculiar pricing schemes such as three-part tariffs and on-net/off-net pricing. This dissertation examines the interaction of consumer behavior and pricing schemes in the wireless telecommunications industry. Chapter 2 addresses in a theoretical model the interaction of consumers' consumption patterns over the billing cycle with the monopolist's provision of access. The service provider designs a menu of contracts to screen privately informed consumers who learn about their actual demand in a sequential manner over the billing period. The model shows that the distorted contracts in the profit-maximizing menu of tariff options are characterized by an increasing marginal price schedule. Three-part pricing schemes commonly observed in the wireless telecommunications industry consisting of a fixed monthly fee, an allowance of minutes and a positive marginal price for minutes consumed in excess of the allowance can be reconciled with rational consumer behavior if the consumer model accounts for the sequential consumption pattern over the billing cycle. Chapter 3 examines termination-based price discrimination, where the price a mobile customers pays for a call to a subscriber on another network (off-net) exceeds the price for a call to a subscriber on the same network (on-net). A standard Hotelling-type model of network competition is combined with closed user groups such as a family or a group of friends who are able to internalize tariff-mediated network externalities when choosing their network. The model results show that termination differentials can reduce social welfare and contradict the commonly held belief that the presence of closed user groups can mitigate networks' market power. The empirical analysis in Chapter 4 presents a structural consumer model of tariff choice and consumption in the presence of three-part tariffs. Econometric results based on individual consumer records suggest that consumers tend to exhibit significant tariff-specific preferences and that the pricing parameters of three-part tariffs have much larger effect on cellular plan choice than on the consumption of cellular calling minutes.

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