Perception, Choice and Usage of Cost Cap Tariffs

• Applicant: Professor Dr. Jan Krämer
• Subject Area: Accounting and Finance
• Term: from 2012 to 2015
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 221923101

Consumers are often confronted with a vast number of different tariffs from which to choose. This is particularly evident in the German market for cellular services where consumers can choose from more than 600 tariff variants today. Previous research on tariff choice and perception has only considered a few different tariff types - particularly pay-per-use and flat rate tariffs. This research project focuses on the investigation of cost cap tariffs. This new tariff type is a hybrid between a pay-per-use and a flat rate tariff and is successfully offered in the German mobile communications market since 2009. Under a cost cap tariff, costs initially increase linearly with usage, but are eventually capped. Consumers perception, choice and usage of cost cap tariffs has not yet been scientifically investigated, leaving many research questions open. Previous studies show that tariff choice is not only driven by pure economic motives, but also by latent, psychological effects. These effects can lead to a tariff choice that is not cost minimizing. This phenomenon is called a “tariff bias” and presents a common explanation for the attractiveness of flat rates to consumers (flat rate bias). However, there are limits as to how far these insights can be applied to cost cap tariffs. The focus of this research project is to investigate if and to what extent the choice of cost cap tariff decisions is biased. We will also investigate which effects have an impact on the individual usage of a cost cap tariff, after it has been chosen. Finally, we intend to study which of the tariff components cost cap, base fee, minute price and inclusive minutes are important for the choice of tariffs across different consumer types, and which decision strategies are used during tariff choice. The insights gained from this research project may be used to assist consumers with their tariff choice in the future, such that the vast amount of available tariffs becomes manageable for them. The research project rests on three methodological pillars: (1) representative online surveys (2) a controlled field experiment and (3) economic laboratory experiments with physiological measurements (e.g., heart rate or blood pressure) and with process tracing (e.g., eyetracking) are employed. With these methods it is possible to research complementary aspects for the comprehension of consumers perception, choice and usage of cost cap tariffs, yielding a substantial increase to the current state of knowledge.

• DFG Programme: Research Grants