American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
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