Alternative Measured-Service Rate Structures for Local Telephone Service,
Abstract
The ex-post option would constitute a market test that could discriminate between alternative explanations of consumers' observed preferences for flat-rate service. By choosing the ex-post option consumers could obtain information about their own local telephone usage at low cost. If they presently select flat-rate service primarily because of uncertainty about what their bills would be under measured rates, then an optional ex-post rate should be popular. However, if consumers' choices to date reflect the behavior of informed subscribers who derive utility simply from being able to place local calls at a zero price, then providing an ex-post option will not significantly increase the total number of consumers on a measured rate. In this case, the market data would provide a method of measuring the 'utility premium' that subscribers attach to flat rates (Mitchell 1979c). The finding of a large premium would support the offering of optional flat-rate service on a subsidy-free basis. This approach would then be desirable even when--because measuring costs are small--mandatory measured service would otherwise be judged a welfare-superior rate structure.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 01, 1980
- Accession Number
- ADA095399
Entities
People
- Bridger M. Mitchell
Organizations
- RAND Corporation