The Doubtful Profitability of Foggy Pricing

Eugenio Miravete ()

No 6295, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A particular tariff option is said to be foggy when another option or a combination of other tariff options offered by the same firm is always less expensive regardless of the usage profile of any customer. Alternatively, tariff fogginess may refer to the whole set of tariff options and it is related to the low likelihood that a particular tariff option ends up being the least expensive one among those of a menu of tariff plans for an arbitrary distribution of usage patterns. This paper takes advantage of the exogenous entry of a second carrier in the early U.S. cellular telephone industry. It shows that competition induces firms to introduce mostly non-foggy options, thus abandoning deceptive pricing strategies (fog lifting) aimed to profit from mistaken choices of consumers rather than softening competition through the use of foggy tactics (co-opetition). Results indicate that tariff fogginess is less severe with the entry of a second firm in the industry according to either definition of foggy pricing. Thus competition alone, and in particular the tactics of entrants, appears to correct deceptive pricing strategies, although such correction does not necessarily occur immediately after the entry of a competitor but rather in the long run. Results are robust to the existence of individual uncertainty regarding future telephone usage when consumers sign up for a particular tariff plan.

Keywords: Co-opetition; Fog-lifting; Foggy strategies; Nonlinear pricing; Phasing-out (search for similar items in EconPapers)
JEL-codes: D43 L96 M21 (search for similar items in EconPapers)
Date: 2007-05
New Economics Papers: this item is included in nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://cepr.org/publications/DP6295 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: The Doubtful Profitability of Foggy Pricing (2004)
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:cpr:ceprdp:6295

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6295

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().