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
  • Endowment: Reluctant to leave supplier because of misplaced loyalty
    • UK: Fixed line, 65% say...
  • Default: People tend to buy standard subscriptions even though they don't need it
  • Hyperbolic discounting: Discounts that might not be cheap in the long run
  • Framing biases: The same deal presented in different "wrapping"
  • Heuristics: using "Rule of thumb" to make decisions

    • 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?

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