It's an interesting question. Even leaving aside the question of billing costs, there are conflicting incentives. Service providers want to extract maximal revenues, but that requires not just fine-scaled pricing, but very overt and fine-scaled price discrimination (which may often be illegal). On the other hand, even aside from general customer preferences for flat-rate simplicity (and the empirically demonstrated willingness to pay more for flat rates), even in the conventional economic model in which Homo economicus customers are trying to maximize well-defined utilities, flat rates can be seen as a form of bundling, which allow the sellers to benefit from the uneven valuations of buyers. A simple argument demonstrating this is on p. 19 of the preprint of my paper "Internet pricing and the history of communications," http://www.dtc.umn.edu/~odlyzko/doc/history.communications1b.pdf (which appeared in Computer Networks 36 (2001), pp. 493-517). This is something that most people in the telecom industry appear to be blissfully unaware of. Just as they are unaware of the fact that for almost a century, the US, which was an outlier on the world telecom scence in having (predominantly, although not universally) flat rate residential service, had higher telecom spending (as fraction of GDP, say) than countries that switched to metered rates. One cannot say a priori whether flat or metered rates will be better for either sellers or buyers, it all depends. But it is amusing to see the cable companies, in particular, fighting tooth and nail against moves to make them unbundle video channels while at the same time arguing they have to charge by volume (which is a form of bundling). Andrew On Fri, 17 Dec 2010, Jeroen van Aart wrote:
Jay Ashworth wrote:
individual subscriber pushed the complexity up, in much the same way that flat rate telecom services are popular equally because customers prefer them, and because the *cost of keeping track* becomes >delta.
Can someone then please explain me why the hell in many other countries flatrate telecom service (I refer to flatrate local calls) does not exist or has been phased out. In the Netherlands they phased it out in the mid to late 80s. I am sure the then government owned telecom rats saw increased revenue coming real soon now due to increased modem usage.
(still pissed at ridiculously and unnecessarily high phonebills...)
It seems to me that at least in that case the cost of keeping track was far less than the increased revenue that metered (if that's the right word) local calls would provide.
Regards, Jeroen
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