|
EconStor >
Rheinische Friedrich-Wilhelms-Universität Bonn >
Bonn Graduate School of Economics (BGSE), Universität Bonn >
Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/38800
|
| | |
| Title: | | Uncertain demand, consumer loss aversion, and flat-rate tariffs  |
| Authors: | | Herweg, Fabian |
| Issue Date: | | 2010 |
| Series/Report no.: | | Bonn econ discussion papers 2010,14 |
| Abstract: | | 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. |
| Subjects: | | Consumer Loss Aversion Flat-Rate Tariffs Nonlinear Pricing Uncertain Demand |
| JEL: | | D11 D43 L11 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn
|
| |
| | |
Download bibliographical data as:
BibTeX
|
| |
Share on:http://hdl.handle.net/10419/38800
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|