A reader was puzzled about a recent story on an industry study about Canadians’ willingness to pay for cellular services. The story, which ran online with the headline Canadians would be willing to pay more for cellular services, study says, sparked a lot of comments, with many readers castigating the cellular industry for high costs and questioning the study.
This reader’s question was more about whether the story explained the point of the research well enough.
“I’m wondering if there was an additional sentence needed here in this story explaining the methodology. All I can see is this: ‘... the study calculates a concept called the “consumer surplus” which is the difference between the dollar value a consumer ascribes to a service and its going market rate.’ Not sure that backs up the headline: ‘Study says Canadians would be willing to pay more for cellular services.’”
I read the story and similarly was confused by the notion of “consumer surplus.” The story did try to explain it by saying it is the “difference between the dollar value a consumer ascribes to a service and its going market rate.”
Report on Business deputy editor Patrick Brethour said that description is correct, but too brief an explanation, and I would agree. Mr. Brethour explained that consumer surplus is the difference between what an average consumer is willing to pay for a good or service and what they actually pay. Some, but not all people might be willing to pay much more for a car, house, or cellphone service, but the selling price will be set lower to capture customers who are only willing to pay a lower price. That then means that the first group effectively gets a product for less than what they would willingly pay.
So based on the number of people who have cell service, that is where the industry research generates its estimate of a $11.5-billion consumer surplus for 2011. That doesn’t mean you are willing to pay more, but the research suggests that if everyone paid the highest amount they were willing to pay, it would be $11.5-billion more.
The article is clear in stating the study was done by a telecom consultancy and it includes the countervailing view from OpenMedia.ca executive director Steve Anderson, a consumer advocate who warned that “with independent providers unable to gain a foothold in this country and offer real choice, the Big Three are able to raise prices at will and to trap Canadians in restrictive contracts with poor service.”
Mr. Brethour said it is important, if you are going to quote industry research, to identify it as such and balance it with the other side, as was done in this story. I agree that care needs to be taken because it seems likely that industries would publish positive and not negative research.
So was the headline correct in saying that “Canadians would be willing to pay more for cellular services”? Headlines tend to be very brief and not tell the whole story. I would suggest another headline, such as “Average consumer willing to pay more for cellular services, industry study says ”.
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