American Economic Review Vol. 105 No. 1 2015

Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock

Michael D. Grubb¹; Matthew Osborne²

¹ Department of Economics, Boston College, 140 Commonwealth Avenue, Chestnut Hill, MA 02467. · ² Institute for Management and Innovation and Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, ON M5S 3E6, Canada (e-mail: ).

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.

DOI

10.1257/aer.20120283

Volume

105

Issue

1

Pages

234-271

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓