Journal
PRODUCTION AND OPERATIONS MANAGEMENT
Volume 30, Issue 10, Pages 3758-3783Publisher
WILEY
DOI: 10.1111/poms.13480
Keywords
tariff design; telecommunications; three-part tariff; sharing economy; loss aversion
Funding
- National Natural Science Foundation of China [NSFC: 71801096, 71925002, 71731006]
- City University of Hong Kong [11505219]
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Research indicates that allowing user trading can improve consumption efficiency and reduce overage disutility, though it may lead to loss of overage revenue. Overall, trading can be beneficial to the firm, with addressing customers' overage disutility being critical for profitability.
Popular tariffs in the telecommunications market, such as three-part tariffs and flat-rate plans, specify an allowance below which customers enjoy a free and high-quality service. When they consume beyond the allowance, customers either need to pay for the overage (under three-part tariffs) or receive a degraded service (under flat-rate plans), thus experiencing an overage disutility. Some network service providers have recently begun to allow data trading among their subscribers, who can now sell their allowances or buy up to meet their needs. We study whether and how allowing user trading can enhance a service provider's profitability. Considering a monopolistic firm, we find that allowing trading among users improves system-wide consumption efficiency and reduces overage disutility at the expense of losing overage revenue. Overall, trading can be beneficial to the firm. Particularly, the profitability of the firm is critically driven by addressing customers' overage disutility. Moreover, allowing trading always improves social welfare and can also improve consumer surplus. Finally, on a self-operated platform, the firm may find it not profitable to charge a transaction fee but will regulate up the trading price.
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