Quantity surcharges occur when firms market a product in two sizes and offer a promotion on the small size: the large size then costs more per unit than the small one. When quantity surcharges occur the sales of the large size decrease only slightly despite the fact that the small size is a cheaper option – a clear arbitrage opportunity. This behavior is consistent with the notion of rationally inattentive consumers that has been developed in models of information frictions. We discuss implications for consumer decision making, demand estimation, and firm pricing.
This paper extends the standard model of bundling to allow products to be substitutes and for products to be supplied by separate sellers. Whether integrated or separate, firms have an incentive to introduce bundling discounts when demand for the bundle is elastic relative to demand for stand-alone products. Separate firms often have a unilateral incentive to offer inter-firm bundle discounts, although this depends on the detailed form of substitutability. Bundle discounts mitigate the innate substitutability of products, which can relax competition between firms and induce an integrated firm to lower all of its prices when it follows a bundling strategy.
Internet usage is rapidly growing in areas like cosmopolitan cities, semi-urban cities in India. I-enabled services offered by various government agencies, educational institutions and commercial activities force users of these services to seek superior internet access like broadband, WiMax is likely to replace traditional broadband and dial-up access soon. Interestingly, reforms in telecom sector are taking place at a rapid pace in India. Many private players started internet services affecting monopolistic public sector telecoms. The advent of private ISPs, the consumer behavior and brand choice of broadband consumers are witnessing dynamic shift in favor of private players. Cost competitiveness, transparency, paradigm shift in consumer responsiveness etc weigh in favor of Public Sector telecoms. This paper attempts to identify the factors affecting broadband consumer behavior. Further, paper studies the causes and effe cts, mediating effects of consumer behavior and conceptualizes a model to capture these effects. The results suggest that adoption of broadband service is playing a mediatory role in consumer satisfaction.
We analyze the access pricing policy of bank ATMs in India by developing a model given the existence of interchange fees and absence of own bank ATM usage fee and foreign fees in the Indian context. We find that interchange fees incentivize deployment of ATMs over time and at the profit maximizing interchange fee, banks extract the entire consumer surplus under a system of free usage fees. Banks deploy ATMs not to raise the deposit base, but to generate interchange fee revenues. Consumers prefer to join a bank with large ATM networks to avoid making more foreign withdrawals and this induces banks to expand their ATM networks in a bid to raise their deposit market share. These results are consistent with recent events in India.