Popular tariffs in the telecommunications market, such as three‐part tariffs and flat‐rate plans, specify an allowance below which customers enjoy a free and high‐quality service. When they consume beyond the allowance, customers either need to pay for the overage (under three‐part tariffs) or receive a degraded service (under flat‐rate plans), thus experiencing an overage disutility. Some network service providers have recently begun to allow data trading among their subscribers, who can now sell their allowances or buy up to meet their needs. We study whether and how allowing user trading can enhance a service provider's profitability. Considering a monopolistic firm, we find that allowing trading among users improves system‐wide consumption efficiency and reduces overage disutility at the expense of losing overage revenue. Overall, trading can be beneficial to the firm. Particularly, the profitability of the firm is critically driven by addressing customers’ overage disutility. Moreover, allowing trading always improves social welfare and can also improve consumer surplus. Finally, on a self‐operated platform, the firm may find it not profitable to charge a transaction fee but will regulate up the trading price.
AbhishekV.GuajardoJ.ZhangZ.. 2019. Business models in the sharing economy: Manufacturing durable goods in the presence of peer‐to‐peer rental markets. Available at SSRN 2891908.
2.
AkerlofG. A.1978. The market for “lemons”: Quality uncertainty and the market mechanism. Uncertainty in Economics, Elsevier, pp. 235–251.
AscarzaE.LambrechtA.VilcassimN.. 2012. When talk is “free”: The effect of tariff structure on usage under two‐ and three‐part tariffs. J. Mark. Res.49(6): 882–899.
5.
BaghA.BhargavaH. K.. 2013. How to price discriminate when tariff size matters. Mark. Sci.32(1): 111–126.
6.
BellosI.FergusonM.ToktayL. B.. 2017. The car sharing economy: Interaction of business model choice and product line design. Manuf. Serv. Oper. Manag.19(2): 185–201.
7.
BenjaafarS.HuM.. 2020. Operations management in the age of the sharing economy: What is old and what is new?Manuf. Serv. Oper. Manag.22(1): 93–101.
8.
BenjaafarS.KongG.LiX.CourcoubetisC.. 2019. Peer‐to‐peer product sharing: Implications for ownership, usage and social welfare in the sharing economy. Management Sci.65(2): 477–493.
9.
CachonG. P.DanielsK. M.LobelR.. 2017The role of surge pricing on a service platform with self‐scheduling capacity. Manuf. Serv. Oper. Manag.19(3): 368–384.
10.
ChenJ.EstebanS.ShumM.. 2013. When do secondary markets harm firms?Am. Econ. Rev.103(7): 2911–34.
11.
CuiY.DuenyasI.ŞahinÖ.. 2014. Should event organizers prevent resale of tickets?Management Sci.60(9): 2160–2179.
12.
DeboL. G.ToktayL. B.WassenhoveL. N. V.. 2005. Market segmentation and product technology selection for remanufacturable products. Management Sci.51(8): 1193–1205.
GhoseA.TelangR.KrishnanR.. 2005. Effect of electronic secondary markets on the supply chain. J. Manag. Inf. Sys.22(2): 91–120.
15.
GhoseA.SmithM. D.TelangR.. 2006. Internet exchanges for used books: An empirical analysis of product cannibalization and welfare impact. Inf. Sys. Res.17(1): 3–19.
16.
GrubbM. D.2009. Selling to overconfident consumers. Am. Econ. Rev.99(5): 1770–1807.
GudaH.SubramanianU.. 2019. Your uber is arriving: Managing on‐demand workers through surge pricing, forecast communication and worker incentives. Management Sci.65(5): 1995–2014.
19.
GümüşM.RayS.YinS.. 2013. Returns policies between channel partners for durable products. Mark. Sci.32(4): 622–643.
20.
HendelI.LizzeriA.. 1999. Interfering with secondary markets. RAND J. Econ.30(1): 1–21.
21.
HuangR.2013. China Mobile Hong Kong Subscribers Can Sell Unused Data Capacity. Available at: https://www.theregister.co.uk/2013/12/20/china_mobile_2cm_data_trade/, (access date February 20, 2018).
22.
HuangS.YangY.AndersonK.. 2001. A theory of finitely durable goods monopoly with used‐goods market and transaction costs. Management Sci.47(11): 1515–1532.
23.
IyengarR.JedidiK.KohliR.. 2008. A conjoint approach to multipart pricing. J. Mark. Res.45(2): 195–210.
24.
JiangB.TianL.. 2018. Collaborative consumption: Strategic and economic implications of product sharing. Management Sci.64(3): 1171–1188.
25.
JiangL.DimitrovS.MantinB.. 2017. P2P marketplaces and retailing in the presence of consumers’ valuation uncertainty. Prod. Oper. Manag.26(3): 509–524.
26.
JohnsonJ. P.2011. Secondary markets with changing preferences. RAND J. Econ.42(3): 555–574.
27.
KlingJ. P.Van Der PloegS. S.. 1990. Estimating local call elasticities with a model of stochastic class of service and usage choice. Telecommunications Demand Modeling: An Integrated View. Amsterdam: North‐Holland.
LambrechtA.SkieraB.. 2006. Paying too much and being happy about it: Existence, causes, and consequences of tariff‐choice biases. J. Mark. Res.43(2): 212–223.
30.
LambrechtA.SeimK.SkieraB.. 2007. Does uncertainty matter? Consumer behavior under three‐part tariffs. Mark. Sci.26(5): 698–710.
31.
LeeM. S.1988. Two‐part pricing in a competitive market: An empirical investigation of the video movie rental case. J. Acad. Mark. Sci.54(54): 195–199.
32.
LeeH.WhangS.. 2002. The impact of the secondary market on the supply chain. Management Sci.48(6): 719–731.
33.
LiT.XieJ.LiuX.. 2020. Consumer return policies in presence of a P2P market. Omega97: 102092.
34.
MantinB.KrishnanH.DharT.. 2014. The strategic role of third‐party marketplaces in retailing. Prod. Oper. Manag.23(11): 1937–1949.
35.
McGovernG.2007. Virgin Mobile USA: Pricing for the Very First Time. Harvard Business Publishing, Boston.
36.
Money Today. 2013. Smart Phone Data Business, 1 GB Price. Available at http://news.mt.co.kr/mtview.php?no=2013020713333%20217104, (access date April 19, 2018).
37.
OraiopoulosN.FergusonM. E.ToktayL. B.. 2012. Relicensing as a secondary market strategy. Management Sci.58(5): 1022–1037.
38.
PrelecD.LoewensteinG.. 1998. The red and the black: Mental accounting of savings and debt. Mark. Sci.17(1): 4–28.
39.
SenS.Joe‐WongC.HaS.. 2012. The economics of shared data plans. 22nd Workshop on Information Technologies and Systems, WITS 2012, University of Florida, Warrington College, pp. 157–162.
40.
ShulmanJ. D.CoughlanA. T.. 2007. Used goods, not used bads: Profitable secondary market sales for a durable goods channel. Quant. Mark. Econ.5(2): 191–210.
41.
SomanD.2001. Effects of payment mechanism on spending behavior: The role of rehearsal and immediacy of payments. J. Cons. Res.27(4): 460–474.
42.
SusantoH.ZhangH.HoS.LiuB.. 2017. Effective mobile data trading in secondary ad‐hoc market with heterogeneous and dynamic environment. 2017 IEEE 37th International Conference on Distributed Computing Systems (ICDCS), pp. 645–655.
43.
SwanP. L.1972. Optimum durability, second‐hand markets, and planned obsolescence. J. Polit. Econ.80(3, Part 1): 575–585.
44.
TianL.JiangB.. 2018. Effects of consumer‐to‐consumer product sharing on distribution channel. Prod. Oper. Manag.27(2): 350–367.
45.
TrainK. E.McFaddenD. L.Ben‐AkivaM.. 1987. The demand for local telephone service: A fully discrete model of residential calling patterns and service choices. RAND J. Econ.18: 109–123.
46.
YinS.RayS.GurnaniH.AnimeshA.. 2010. Durable products with multiple used goods markets: Product upgrade and retail pricing implications. Mark. Sci.29(3): 540–560.
47.
YuS.2013. China Mobile Hong Kong Users Can Sell Unused Data Capacity. South Chian Morning Post: Available at http://www.scmp.com/business/companies/article/1386248/china‐mobile‐hong‐kong‐users‐can‐sell‐unused‐data‐capacity (access date February 20, 2018).
