A key benefit of using car sharing services (relative to car ownership) is that they are more cost effective. Car sharing firms offer a menu of pricing plans to make this happen. The two most common plans are flat-rate and pay-per-use pricing. However, little is known about how consumers choose among these pricing plans. In this study, we analyze consumers' choices between pay-per-use and flat-rate pricing using data from a car sharing provider in a large European city. We show that over 40% of customers make nonoptimal pricing plan choices (i.e., they do not choose the cost minimizing plan). In contrast to previous research, we find a prevalent and time-persistent pay-per-use bias; i.e., we find little evidence that consumers "learn". We propose three potential explanations for the existence and persistence of this bias. First, we suggest that customers underestimate their usage. Second, we propose that customers have a preference for flexibility, leading them to pay more. Finally, we show that the physical context, such as weather, increases the likelihood of a pay-per-use bias. We suggest that the pay-per-use bias may be the prevalent tariff choice bias in the Sharing Economy.

Digitalization has changed existing business models and enabled new ones. This development has been accompanied by the emergence of new pricing options and the possibility of applying established pricing models in new domains. Today, consumers can, for example, pay for accessing a product instead of buying it. Within such sharing services, consumers can usually choose between a flat-rate and a pay-per-use option. Prior work demonstrated that consumers' tariff choices are often systematically biased.Overconfidence was identified as one of the key drivers. Yet, prior research is nonexperimental and focused on the so-called flat-rate bias. By contrast, we examine the effects of overconfidence on tariff choice experimentally. We show that overconfident consumers overestimate their ability to predict their future usage, which leads them to underestimate their actual usage, and eventually leads them to choose a pay-per-use (vs. a flat-rate) option more frequently. We discuss theoretical and managerial implications.

Consumers regularly have to choose between a pay-per-use and a flat-rate option. Due to the increasing number and range of (digital) services, the frequency at which consumers have to make tariff-choice decisions to use these services has become even more prevalent. Prior work has demonstrated that consumers’ tariff choices are often systematically biased and identified overconfidence as one of the key drivers. Yet, prior research is non-experimental and focused on the so-called flat-rate bias. By contrast, we examine the effects of overconfidence on the choice between a pay-per-use and a flat-rate option using an experimental approach. We develop an incentive-compatible experiment to provide causal evidence for the effect of overconfidence on tariff-choice decisions. We find that overconfident (underconfident) consumers underestimate (overestimate) their actual usage, which leads them to choose a pay-per-use (flat-rate) option relatively more frequently. Based on the results, we discuss theoretical and managerial implications as well as avenues for future research.

Psychology and economics (the mixture of which is known as behavioral economics) are two fundamental disciplines underlying marketing. Various marketing studies document the nonrational behavior of consumers, even though behavioral biases might not always be consistently termed or formally described. In this review, we identify empirical research that studies behavioral biases in marketing. We summarize the key findings according to three classes of deviations (i.e., non-standard preferences, non-standard beliefs, and non-standard decisionmaking) and the marketing mix instruments (i.e., product, price, place, and promotion). We thereby introduce marketing researchers to the theoretical foundation of and terminology used in behavioral economics. For scholars from behavioral economics, we provide ready access to the rich empirical, applied marketing literature. We conclude with important managerial implications resulting from the behavioral biases of consumers, and we present avenues for future research.

A key benefit of using car sharing services (relative to car ownership) is that they are more cost effective. Car sharing firms offer a menu of pricing plans to make this happen. The two most common plans are flat-rate and pay-per-use pricing. However, little is known about how consumers choose among these pricing plans. In this study, we analyze consumers' choices between pay-per-use and flat-rate pricing using data from a car sharing provider in a large European city. We show that over 40% of customers make nonoptimal pricing plan choices (i.e., they do not choose the cost minimizing plan). In contrast to previous research, we find a prevalent and time-persistent pay-per-use bias; i.e., we find little evidence that consumers "learn". We propose three potential explanations for the existence and persistence of this bias. First, we suggest that customers underestimate their usage. Second, we propose that customers have a preference for flexibility, leading them to pay more. Finally, we show that the physical context, such as weather, increases the likelihood of a pay-per-use bias. We suggest that the pay-per-use bias may be the prevalent tariff choice bias in the Sharing Economy.