Verizon Wireless to Offer Cheaper Data Plan

The article I chose to write about is from the Wall Street Journal, October 20, title Verizon’s Cheaper Data Plan. The article discusses how Verizon is introducing a new data plan. Before, the only option for a data plan from Verizon was a $30 unlimited data plan. Now Verizon is introducing a new data plan, for $15 customer get data access limited to 150 megabytes a month. Their competitor AT&T is already offering a plan similar to Verizon’s new plan, the only difference is that AT&T customers get 200 megabytes a month. One issue is that the average Verizon data user consumes 485 megabytes a month. For Verizon customers on the limited data plan who exceeded the 150 megabyte limit, they will be charged a 10 cent fee per megabyte.
Verizon is testing this plan over the holiday season to see how successful it will be. How is Verizon going to define success? It will be a success if the number of data customers increases. If we look at the consumer model where Cell phone services is on the X axis and all other goods is on the Y axis. The decrease in the price of data plan will cause the x intercept to rotate outwards. The implications are that a data plan might become affordable for people who could not originally afford it, and for people who were previous data customers that switch will be able to afford more of the all other goods. Anyone who takes advantage of this cheaper data plan moves to a higher indifference curve as long as the plan meets their needs. So if we take the consumer model and aggregate them together Verizon should see an increase in demand for their data packages.
If they are exceeding the 150 megabyte data limit the overage charges will rotate the budget line back in and cause the consumer to move back towards their original indifference curve. If the overage is bad enough they could even move to an even lower indifference curve.
The article does not explore how this increase in consumer demand of data plans will affect Verizon, is the $15 price enough to cover the marginal cost of the increase in data users. If the increase in users is large enough the $15 price tag will not be enough to cover the costs. This would certainly be considered a failure and Verizon would either drop the data plan or increase its price.