Heuristics to select the optimal method

Which method should be applied to analyse prices from a specific new system of tariff plans? This question is answered by summarising the most important general insights of all three projects combined. As a result, the choice is mainly dependent on three factors, namely the characteristics of the tariff plans, the purpose of the analysis and the available data.

Problems caused by tariff plans

Tariff plan systems pose problems in standard price statistics when trying to compare service providers. That services can be purchased via different tariff plans is the central issue. This results in different costs or prices for the consumption of identical services. Additionally, complex and diverse tariff plan specifications, such as flat rates or special discounts, often pose immense problems because the resulting service prices are independent of consumption.

The aim of a price comparison should be to compare implicit prices for actually consumed services, not to compare explicit prices that are not related to actual consumption. The presented approaches analyse prices resulting from tariff plans by adjusting price indexes for actual quantities consumed, corresponding quality and prices paid.

Identifying explicit and implicit prices

For this purpose, explicit and implicit prices have to be identified and distin-guished for the given tariff plans and providers. When implicit unit prices can be identified and estimated, several price index concepts are applicable. If implicit unit prices cannot be identified or estimated, the use of consumption profiles is required. Determining service prices for consumption profiles is al-most always a feasible solution. The downside is, as discussed throughout the entire thesis, that the resulting prices may lack important aspects of the tariff plans, which results in questionable rankings of provider prices. For example, in the mobile communication project, the profiles did not allow the inclusion of the discounts for students, which are a significant component of the service prices.

Selecting the optimal method

If implicit unit prices can be estimated, the choice of the optimal method is dependent on the purpose of the analysis, the characteristics of the tariff plans and the available data (or the budget for sampling). If the purpose is a simple measure that has to be stable and easily communicated, a standard price index formula, as in the public transport chapter, is preferable. If a more extensive analysis is planned, or if the characteristics of the tariff plans are complex (for example, when different units are contained in a service, such as in mobile communication), the hedonic approach is very promising. However, in reality, sampling cost or available data are usually the limiting factors.

Data as resource and constraint

If data of single observations are not available or the general quality is inferior, it may be difficult or even impossible to estimate implicit unit prices. In this case, one has to rely again on consumption profiles. Despite all of their problems, consumption profiles have two major advantages. First, if tariff plans for several services are analysed, as in chapter 4, the other approaches can result in overly complicated price comparisons. The results may be difficult to interpret or be influenced by the limiting assumptions that were needed to obtain them.

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The second advantage of fixed consumption profiles is that the corresponding prices can be determined under any circumstances, especially when no data is available and the budget to generate new data is limited.

Data from service providers

As in chapter 3, which addressed public transport, data about aggregated rev-enue and consumption from providers might be available. Or even better, they could have consumer-specific observations on hand; for example, mobile com-munications service providers have monthly phone bills. The advantage of this scenario is obviously that the cost of data generation is minimal. The down-side is that aggregated consumption is usually estimated, and these estima-tions may contain problems. Additionally, the data are provided by the provider whose prices are analysed, so there may be conflicts of interests.

Accuracy of the three applied methods

In this thesis, only three methods were presented. There is no need to men-tion that other approaches exist for comparing prices resulting from tariff plans.

From the applied methods, the hedonic price indexes yield theoretically accu-rate results if the model is specified correctly. However, the method requires good data quality. Additionally, the approach requires a sufficiently large sam-ple. Moreover, the concept for public transport results in a theoretically unbi-ased and accurate estimator for the price of an averagely travelled kilometer.

The problem is again on the data side. If one cannot ensure that the estima-tion quality of aggregated revenue and consumpestima-tion is good, profiles may be a more reliable and stable measure for comparing prices.

Therefore, these two concepts are theoretically accurate estimators for provider prices. However, they depend heavily on data quality and are quite sensitive.

The third approach, the profile method, is the opposite. Theoretically, it is not necessarily an unbiased estimator. It is applied for basic services because there is only one tariff per municipality and service. In this case, no strict assumptions about the consumer behaviour are required. The profile method is theoretically not very elegant. But practically, it is very robust towards data because prices for profiles can always be collected and compared. To sum up,

if data quality is bad, using a ’fancy’ method might yield less accurate results than profiles do.

Appendix A

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