The Poking Effect: Price Changes, Information, and Inertia in the Market for Mobile Subscriptions

Abstract

We study consumer inertia in the mobile subscription market, focusing on the decision of whether to switch to a competing provider. To identify the extent of inertia, we exploit price changes faced by 270,000 consumers of a large telecom provider. We document that the propensity to switch provider after the price change increases among consumers whose costs decrease with the new prices. Furthermore, we find that the increase is largest right after consumers are informed of the upcoming change-during the two months prior to the tariff change-as opposed to when the price change is implemented. From these findings, we infer what we call a poking effect; the information of an upcoming price change causes consumers to engage in searches for alternative offers, leading to increased switching. We supplement the analysis with a survey and find indications that the poking effect is due to consumer inattention. To separate the effect on attention from the reaction to the actual price change, we estimate a model of consumer choice with limited attention. We find that when consumers are poked, it increases the share of consumers becoming attentive to competing offers. This leads many consumers to switch providers earlier than they would otherwise, explaining why they leave even though their terms with their current company improve.

Obfuscation and Rational Inattention*

“…Even if digitalization homogeneously affects information costs, industries with more asymmetric prior beliefs would be less likely to stay in a state of high obfuscation and prices. For example, in the mobile subscription industry, switching costs, industry-specific advertisement and other reasons for habit persistence increase the differences in prominence (Reme et al [2018]). Therefore, decreasing information costs may have larger equilibrium consequences in the mobile subscription market compared to other markets with more symmetric prior beliefs about prices.…”

Paywalls and the Demand for Online News

“…For 105 news outlets we keep the null of no autocorrelation of first order on a 99%-level. For 91 we keep the null on a 95% level 23. This is the case if we also include the competitors' share behind a payment wall (not reported).…”