Estimating the Demand for Service Bundles under Three‐Part Tariffs

Liang Chen, Yao Luo and Ping Xiao

Journal of Industrial Economics, 2019, vol. 67, issue 3-4, 448-483

Abstract: Consumers may face demand uncertainty when choosing a service plan under three‐part tariffs, and preferences for multiple services may be inter‐dependent. To examine such a demand system, we construct a two‐stage discrete/continuous choice model for service bundles, allowing for interactive utility and preference correlations. Implementing a piecewise maximization approach to consumers’ non‐differentiable utility maximization problem, we estimate the model via simulated method of moments. We empirically illustrate the model using data from a Chinese wireless service provider. Our counterfactual analysis shows that the three‐part tariffs with interchangeable units show no significant loss of revenue, compared to existing tariffs.

Date: 2019
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Journal of Industrial Economics is currently edited by Pierre Regibeau, Yeon-Koo Che, Kenneth Corts, Thomas Hubbard, Patrick Legros and Frank Verboven

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