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Wireless Industry Pricing Plans Confuse Economists, Too
Trying to unwravel the logic behind buckets o' minutes

Whether it comes to triple play broadband or wireless service, pricing plans are often designed to give the illusion of value -- instead of the real thing. Bundle plans are often designed to prevent direct comparisons with a competitor's service, and plans are almost always designed to get you to pay more money than you'd like. It's of course all based on mountains of data collected exploring what consumer's will pay. Saul Hansell at the New York Times explores in particular the wireless industry's pricing plan magic -- which apparently even occasionally dumbfounds economists:

quote:
"The whole pricing thing is weird," said Barry Nalebuff, an economics professor at the Yale School of Management. "You pay $60 to make your first phone call. Your next 1,000 minutes are free. Then the minute after that costs 35 cents." To economists, it simply doesn�t make sense to make chatterboxes pay that penalty. After all, most businesses tend to give discounts to customers who buy more.
Hansell goes on to explore how people are so risk-averse, they're willing to pay more in base service costs just to avoid overage fees. The article seems to run with the undercurrent that it's the consumer that drives many of these bizarre pricing systems, and that were you to see wireless carriers as "avaricious oligopolists trying to gouge consumers for every penny they can" you'd apparently be mistaken. Hansell even goes on to suggest that carriers aren't even sure how much service costs them:
quote:
In many ways, however, the least important factor in setting prices is the actual cost of providing cellular service. Cellphone companies resemble airlines, that other industry whose oblique prices exasperate consumers. Think of a cellphone network as one giant airplane that costs tens of billions of dollars to build. The cellphone companies don�t really know how much it costs to handle a call to Aunt Suzy in Syracuse, any more than an airline can calculate a specific cost for Seat 12B.
Apparently, not only does telco wireless pricing confuse consumers and economists, it confuses the telcos, too.


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Mr Matt
join:2008-01-29
Eustis, FL
kudos:2
·Xfinity
·CenturyLink
·Millenicom

Mr Matt

Member

Remember Regan's Speech.

Regan is the father of misleading pricing. I am going to eliminate all regulation (So that big business can F*&K consumers). Regan's policies were at the bottom or our economic melt down. Is it not amazing how the digital age came at the same time Regan was in office and there was no protection for consumers for new digital services. His hands off policies brought us shrink wrapped contracts and below line pricing for new services. Economists should not be surprised that Regan-ism is the foundation of the current pricing models.

How about ..