Overage Disutility, User Trading, and Tariff Design

Weixiang Huang, Yanzhi Li and Youhua Chen

Production and Operations Management, 2021, vol. 30, issue 10, 3758-3783

Abstract: Popular tariffs in the telecommunications market, such as three‐part tariffs and flat‐rate plans, specify an allowance below which customers enjoy a free and high‐quality service. When they consume beyond the allowance, customers either need to pay for the overage (under three‐part tariffs) or receive a degraded service (under flat‐rate plans), thus experiencing an overage disutility. Some network service providers have recently begun to allow data trading among their subscribers, who can now sell their allowances or buy up to meet their needs. We study whether and how allowing user trading can enhance a service provider's profitability. Considering a monopolistic firm, we find that allowing trading among users improves system‐wide consumption efficiency and reduces overage disutility at the expense of losing overage revenue. Overall, trading can be beneficial to the firm. Particularly, the profitability of the firm is critically driven by addressing customers’ overage disutility. Moreover, allowing trading always improves social welfare and can also improve consumer surplus. Finally, on a self‐operated platform, the firm may find it not profitable to charge a transaction fee but will regulate up the trading price.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1111/poms.13480

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:popmgt:v:30:y:2021:i:10:p:3758-3783

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().