Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • Article
  • Journal of Marketing Research (JMR)

When Talk Is "Free": The Effect of Tariff Structure on Usage Under Two- and Three-Part Tariffs

By: Eva Ascarza, Anja Lambrecht and Naufel Vilcassim
  • Format:Print
ShareBar

Abstract

In many service industries, firms introduce three-part tariffs to replace or complement existing two-part tariffs. In contrast with two-part tariffs, three-part tariffs offer allowances, or “free” units of the service. Behavioral research suggests that the attributes of a pricing plan may affect behavior beyond their direct cost implications. Evidence suggests that customers value free units above and beyond what might be expected from the change in their budget constraint. Nonlinear pricing research, however, has not considered such an effect. The authors examine a market in which three-part tariffs were introduced for the first time. They analyze tariff choice and usage behavior for customers who switch from two-part to three-part tariffs. The findings show that switchers significantly “overuse” in comparison with their prior two-part tariff usage. That is, they attain a level of consumption that cannot be explained by a shift in the budget constraint. The authors estimate a discrete/continuous model of tariff choice and usage that accounts for the valuation of free units. The results show that the majority of three-part-tariff users value minutes under a three-part tariff more than they do under a two-part tariff. The authors derive recommendations for how the provider can exploit these insights to further increase revenues.

Keywords

Pricing; Nonlinear Pricing; Discrete/continuous Choice Model; Three-part Tariffs; Uncertainty; Learning; Free Products; Price; Consumer Behavior; Analysis

Citation

Ascarza, Eva, Anja Lambrecht, and Naufel Vilcassim. When Talk Is "Free": The Effect of Tariff Structure on Usage Under Two- and Three-Part Tariffs. Journal of Marketing Research (JMR) 49, no. 6 (December 2012): 882–900.
  • Find it at Harvard
  • Read Now

About The Author

Eva Ascarza

Marketing
→More Publications

More from the Authors

    • January 2021
    • Faculty Research

    Amazon Shopper Panel: Paying Customers for Their Data

    By: Eva Ascarza and Ayelet Israeli
    • 2020
    • Faculty Research

    Detecting Routines in Ride-sharing: Implications For Customer Management

    By: Ryan Dew, Eva Ascarza, Oded Netzer and Nachum Sicherman
    • December 2020
    • Faculty Research

    Additional Supplement to Artea Teaching Note

    By: Eva Ascarza and Ayelet Israeli
More from the Authors
  • Amazon Shopper Panel: Paying Customers for Their Data By: Eva Ascarza and Ayelet Israeli
  • Detecting Routines in Ride-sharing: Implications For Customer Management By: Ryan Dew, Eva Ascarza, Oded Netzer and Nachum Sicherman
  • Additional Supplement to Artea Teaching Note By: Eva Ascarza and Ayelet Israeli
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Digital Accessibility
Copyright © President & Fellows of Harvard College