Stress Free Pricing

November 8, 2007

One of Pogue’s Imponderables is the following question:

Why doesn’t someone start a cellphone company that bills you only for what you use? That model works O.K. for the electricity, gas and water companies —and people would beat a path to its door. [And I don’t mean prepaid phones, where once again you’re paying for calls you haven’t even made yet.]

Economist Tyler Cowen says the most likely answer combines price discrimination with consumer misjudgment.

I think the answer is that people try to maximize their preferences while minimizing the amount of stress induced by thinking about it. Stress free brain cycles is the goal. A fixed monthly plan that fits most of your calling needs reduces stress when the monthly fee does not impact your cash flow. If you have problems paying your monthly bill then prepaid cards will reduce your stress. The service provider also tries to minimize stress in their organization (meeting payroll and/or shareholder expectations).

People prefer stress free pricing.

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2 Responses to “Stress Free Pricing”

  1. tom s. Says:

    Absolutely. Volatility is the source of much stress.

    Perhaps one of these days when usage patterns are more clear a cell phone company will try an evened-out billing pattern though, like utilities, where you pay an expected amount each month and then top-up or get the difference back every now and again.


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