Abstract

Abstract This paper investigates why consumers choose calling plans that are not always cost-minimizing. Our approach is twofold: we account for general difficulties facing a tariff choice, as well as for biased preferences. We provide evidence from an experiment among German university students and staff, finding that participants are often not aware of their actual consumption. In line with the findings on flat-rate biases, respondents systematically overestimate their consumption. On the other hand, they are generally able and willing to detect optimal tariffs. Furthermore, with increasing usage level, consumers' performance improves. However, some participants hold strong preferences for certain tariff forms, seducing them to choose cost-dominated offers. In our setup, we find that respondents prefer tariffs involving subsidies or hire-purchase options for handsets over contracts with buy now options. Keywords: Behavioral Economics, Mobile phone tariffs, Handset subsidy, Hirepurchase of device * Duesseldorf Institute for Competition Economics (DICE), e-mail: anne-kathrin.barth@dice.uniduesseldorf.de * * Duesseldorf Institute for Competition Economics (DICE), e-mail: julia.graf@dice.uniduesseldorf.de. We are very grateful to Hans-Theo Normann, Ralf Dewenter and Ulrich Heimeshoff for helpful comments and suggestions. In addition, we would like to thank Volker Benndorf who helped us programming the experiment in z-tree. All remaining errors are solely the responsibility of the authors.