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

Michael Grubb and Matthew Osborne

American Economic Review, 2015, vol. 105, issue 1, 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)

JEL-codes: D12 D18 L11 L96 L98 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/aer.20120283
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Citations: View citations in EconPapers (130)

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Working Paper: Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock (2012)
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