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For many services, consumers can choose among a range of optional tariffs that differ in their access and usage prices. Recent studies indicate that tariff-specific preferences may lead consumers to choose a tariff that does not minimize their expected billing rate. This study analyzes how tariff-specific preferences influence the responsiveness of consumers’ usage and tariff choice to changes in price. We show that consumer heterogeneity in tariff-specific preferences leads to heterogeneity in their sensitivity to price changes. Specifically, consumers with tariff-specific preferences are less sensitive to price increases of their preferred tariff than other consumers. Our results provide an additional reason why firms should offer multiple tariffs rather than a uniform nonlinear pricing plan to extract maximum consumer surplus.
Both practitioners and academics agree about the importance of price and its direct influenceon consumers’ purchase decision as well as the company profit. In the reality, we rarely see a
single price for a given product. One visit in a store already shows that consumers face many various prices. This strategy of differential prices allows to increase profit but also improves consumers’ situation and increases welfare. A wide range of various price differentiation mechanisms exists on the market which makes price differentiation a very interesting phenomenon. Additionally, market developments constantly allow for new price differentiation applications. In this work, I research a fascinating topic of price differentiation, its various forms
and new application possibilities in changing market areas.