If you're a cell phone customer with a limited data plan, getting notifications when you're about to exceed your data limits should help you save money in the long run, right?
A recent study from faculty at the University of Toronto and Boston College suggests that, paradoxically, the exact opposite might apply. Customers who received alerts to avoid “bill shock” (from unexpected charges) spent, on average, $33 per month more on their phone plans than customers who received no such messages:
…. such warnings can be more costly, because cellphone companies adjust their plans and fees accordingly to maintain profits. While some consumers do benefit, others either decrease or stop usage, end up with more expensive plans or continue to underestimate their usage and choose the wrong plan.
Matthew Osborne, a professor at the University of Toronto Mississauga, and Michael Grubb, a professor at Boston College, co-wrote the study, which is published in a recent issue of American Economic Review. The two professors reached their conclusion after they analyzed billing data from a group of student cellphone customers between 2002 and 2004.
Granted, the cell phone market has changed considerably in the decade-plus since that data was first generated, and it's also possible that the behavior of student cell phone customers might not necessarily apply to cell phone customers as a whole.
Even so, the researchers say, verification tests suggest that bill shock alerts can still result in higher bills for customers – which in turn suggests that policies hoping to help customers by requiring such alert notices might paradoxically have the exact opposite effect.
“Perhaps a better avenue is policy that helps consumers do a better job of forecasting their usage,” Osborne said.