Is having an expert “friend” enough? An analysis of consumer switching behavior in mobile telephony

Abstract

We present novel evidence from a large panel of UK consumers who receive personalized reminders from a specialist price-comparison website about the precise amount they could save by switching to their best-suited alternative mobile telephony plan. We document three phenomena. First, even self-registered consumers with positive savings exhibit inertia. Second, we show that being informed about potential savings has a positive and significant effect on switching. Third, controlling for savings, the effect of incurring overage payments is significant and similar in magnitude to the effect of savings: paying an amount that exceeds the recurrent monthly fee weighs more on the switching decision than being informed that one can save that same amount by switching to a less inclusive plan. We interpret this asymmetric reaction on switching behavior as potential evidence of loss aversion. In other words, when facing complex and recurrent tariff plan choices, consumers care about savings but also seem to be willing to pay upfront fees in order to get “peace of mind”.