Consumer Perception of Mobile Telephony Tariffswith Cost Caps

In this article we provide a seminal academic investigationof mobile telephony consumers’ perception of the recentlyintroduced cost cap tariff in comparison to corresponding payper-use and flatrate calling plans. Previous studies have identifiedseveral psychological effects through which consumers are believedto be biased towards flatrate plans. However, flatrate plansalso limit customers’ tariff flexibility in months of low usage.Cost cap tariffs are a hybrid between pay-per-use and flatrateplans and can offer cost insurance while maintaining flexibility.In particular, we provide evidence from a survey among 214German university students that flexibility, cost insurance andthe so-called taximeter effect are the main drivers behind costcap tariff choice. Furthermore, we show that the insurance andtaximeter effects are distinct if evaluated within a flatrate orcost cap tariff framework. Finally, based on our results we alsocomment on the profitability of cost cap plans from a strategicmanagement perspective.