Demand analysis, Consumer behaviour and
Telecommunications policy
(Paper by Patrick Xavier & Dimitri Ypsilanti - 2008)
Introduction to Economics
ITCOM4 - 2013
Introduction
Evolution of telecommunications legislation
Liberation of Telecommunications
Monopoly -> Free market
Focus on supply side
(market entry, licensing, access to and use of networks, interconnection, access to and use of networks...)
Lets create an effectively competing market
Competing Market
Informed consumers =
Stimulate suppliers
Regulators focus on consumers
Demand side measures
Consumer welfare
Demand Side Analysis
Have consumers in fact switched to these alternative suppliers as much as had been expected? If not, why not?
Assumption based analysis (should behave):
- consumers approach markets with a set and stable set of preferences
- consumers are concerned only with their own welfare
- in aggregate at least, consumers can rationally use available information to make optimal decisions.
But...
HUMANS ARE NOT RATIONAL!
SURPRISE!
Behavioural Economics
Goes beyond the assumptions
(Actual behaving)
Not only the product matters, but the context as well.
Regulators must protect consumers from the "out of context"
Why are people not rationale?
- Choice overload: Too many choices makes consumers confused
It's a jungle
UK: Fixed line, 65% say...
Ability and willingness to switch
High perceived costs
Inconvenience
Early exit charge
(fee for ending the subscription)
Incompatible components
Customer locks
(subscription for e.g. 6 months)
UK: mobile supplier, 68% say...
Consumers won't switch if the price difference exceeds the switching costs!
(this includes the perceived costs)
Regulation & Vulnerable Consumers
Why do we need information regulation?
-
Serve the customer
-
Keep the suppliers in "line"
Three subjects:
- Implications regarding regulation of information disclosure
- Consumer behavioral bias
(Vulnerable consumers)
REGULATION & VULNERABLE CONSUMERS
Implications Regarding Regulation of Information Disclosure
Is there such a thing as "Too much information?"
- Reframing
- Simplification
Mandated Disclosure
- For the less-informed consumer
(Is however not always the case)
- Will inevitably be of use to some and to others not
Regulation & Vulnerable Consumers
Consumer Behavioural Bias
Why can we not assume we just know our customers?
(Traditional consumer protection beliefs vs. Modern demand side analysis)
- Unpredictable use of information
- Understanding consumers biases
Minimizing consumer bias
- Reframing of information
- Consumer Education
- Ease of switching process
Regulation & Vulnerable Consumers
Consumer Behavioural Bias - Vulnerable Consumers
Who are the "vulnerable consumers"?
What are the concerns?
- Low amount of data on "vulnerable consumers"
What are their key motivational factors?
- Simplifying/reframing information
Make it available outside the Internet
Conclusion
- Presenting information in a simple format
- Making it available to all
- In particular considering "vulnerable consumers"
Summing up
-
Behavioural economics involves the study of
actual consumer behaviour
as opposed to how the consumers
should behave.
- Regulators and policy makers should take into consideration consumer behavioural biases to really protect consumers, especially 'vulnerable consumers'.
- To further increase participation in the telecommunications market regulators must:
- Educate consumers about the alternative services and suppliers that are available.
- Highlight the tangible benefits of any new service.
- Enable better comparison of alternative price and quality.
- Make the switching process easier.
- Faster and cheaper and allay fears regarding the potential risks associated with switching.
Questions?
demand analysis_consumer behaviour_telecommunications policy
By Cem Turan
