Far too many Americans know what it’s like to open up their cell-phone bill and be shocked by hundreds or even thousands of dollars in unexpected fees and charges. But we can put an end to that with a simple step: an alert warning consumers that they’re about to hit their limit before fees and charges add up. Our phones shouldn’t cost us more than the monthly rent or mortgage.The Obama administration, threatening to impose regulations, reached an agreement with mobile phone companies under which they would inform consumers when they approach their voice, text and data limits. This agreement is why you now receive annoying texts from your service provider - I count 23 from my provider over the past 6 months.
How could anyone argue with something as consumer friendly as this? Particularly since it only provides information? More information is always good, right? Not really. Grubb and Osborne show that firms can change their pricing plans to take account of consumer reactions to the new information, and that overall consumer welfare will be lower than before the new information was provided. Phone company profits would be unchanged.
Politicians want voters to think that they are addressing the problems of ordinary people, like high phone bills. Anything they do, however, only makes things worse. Economists read about it in the AER, but voters only hear the speeches and campaign commercials and are fooled over and over.