Liang Chen（陈亮), Yao Luo，Ping Xiao

Publication:

The Journal of Industrial Economics

Abstract:

Consumers may face demand uncertainty when choosing a service plan under three-part tariffs, and preferences for multiple services may be inter-dependent. To examine such a demand system, we construct a twostage discrete/continuous choice model for service bundles, allowing for interactive utility andpreference correlations. Implementing a piecewise maximization approach to consumers’ non-differentiable utility maximization problem, we estimate the model via simulated method of moments. We empirically illustrate the model using data from a Chinese wireless service provider. Our counterfactual analysis shows that the three-part tariffs with interchangeable units show nosignificant loss of revenue, compared to existing tariffs.

link:https://doi.org/10.1111/joie.12206