Arbeitspapier
Uncertain Demand, Consumer Loss Aversion, and Flat-Rate Tariffs
The so called flat-rate bias is a well documented phenomenon caused by consumers' desire to be insured against fluctuations in their billing amounts. This paper shows that expectation-based loss aversion provides a formal explanation for this bias. We solve for the optimal two-part tariff when contracting with loss-averse consumers who are uncertain about their demand. The optimal tariff is a flat rate if marginal cost of production is low compared to a consumer's degree of loss aversion and if there is enough variation in the consumer's demand. Moreover, if consumers differ with respect to the degree of loss aversion, firms' optimal menu of tariffs typically comprises a flat-rate contract.
- Sprache
-
Englisch
- Erschienen in
-
Series: Bonn Econ Discussion Papers ; No. 14/2010
- Klassifikation
-
Wirtschaft
Consumer Economics: Theory
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
Production, Pricing, and Market Structure; Size Distribution of Firms
- Thema
-
Consumer Loss Aversion
Flat-Rate Tariffs
Nonlinear Pricing
Uncertain Demand
Betriebliche Preispolitik
Preisdifferenzierung
Konsumentenverhalten
Risikoaversion
Nachfrage
Risiko
Theorie
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Herweg, Fabian
- Ereignis
-
Veröffentlichung
- (wer)
-
University of Bonn, Bonn Graduate School of Economics (BGSE)
- (wo)
-
Bonn
- (wann)
-
2010
- Handle
- Letzte Aktualisierung
-
20.09.2024, 08:22 MESZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Herweg, Fabian
- University of Bonn, Bonn Graduate School of Economics (BGSE)
Entstanden
- 2010
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