3 September 2012
We hope you can join us this Wednesday, September 5, 2012 for the first Applied Statistics Workshop of the Fall 2012 semester. Michael Grubb, an Assistant Professor of Applied Economics from the MIT Sloan School of Management, will give a presentation entitled "Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock". A light lunch will be served at 12 pm and the talk will begin at 12.15.
"Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock"
MIT Sloan School of Management
CGIS K354 (1737 Cambridge St.)
Wednesday, September 5th, 2012 12.00 pm
By April 2013, the FCC's recent bill-shock agreement with cellular carriers requires consumers be notified when exceeding usage allowances. Will the agreement help or hurt consumers? To answer this question, we estimate a model of consumer plan choice, usage, and learning using a panel of cellular bills. Our model predicts that the agreement will lower average consumer welfare by $2 per year because firms will respond by raising monthly fees. Our approach is based on novel evidence that consumers are inattentive to past usage (meaning that bill-shock alerts are informative) and advances structural modeling of demand in situations where multi-part tariffs induce marginal-price uncertainty. Additionally, our model estimates show that an average consumer underestimates both the mean and variance of future calling. These biases cost consumers $42 per year at existing prices. Moreover, absent bias, the bill-shock agreement would have little to no effect.
Posted by Konstantin Kashin at September 3, 2012 3:02 PM