Consumer perception of mobile telephony tariffs with cost caps

In this article we provide a seminal academic investigation of mobile telephony consumers´ perception of the recently introduced cost cap tariff in comparison to corresponding pay-per-use and flatrate calling plans. Previous studies have identified several psychological effects through which consumers are believed to be biased towards flatrate plans. However, flatrate plans also limit customers´ tariff flexibility in months of low usage. Cost cap tariffs are a hybrid between pay-per-use and flatrate plans and can offer cost insurance while maintaining flexibility. In particular, we provide evidence from a survey among 214 German university students that flexibility, cost insurance and the so-called taximeter effect are the main drivers behind cost cap tariff choice. Furthermore, we show that the insurance and taximeter effects are distinct if evaluated within a flatrate or cost cap tariff framework. Finally, based on our results we also comment on the profitability of cost cap plans from a strategic management perspective.