Sunday, November 15, 2009

How Much Does it Cost Part 2

The New York Times has an article on how cell phone contracts are priced.

HERE’S a consolation prize to the millions who recoil in bafflement from cellphone companies’ labyrinthine price plans, with their ever more intricate arrays of minutes, messages and megabytes: Economists don’t understand them, either.

In many parts of the world, the pricing of cellphone calling is simple. But in the United States, carriers offer multitiered plans.

“The whole pricing thing is weird,” said Barry Nalebuff, an economics professor at the Yale School of Management. “You pay $60 to make your first phone call. Your next 1,000 minutes are free. Then the minute after that costs 35 cents.”

To economists, it simply doesn’t make sense to make chatterboxes pay that penalty. After all, most businesses tend to give discounts to customers who buy more.

Read the rest at The New York Times.