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Strategic Implications of Competing for Consumers with Time Inconsistent Preferences

Alexei Alexandrov
Simon Graduate School of Business, University of Rochester


March 23, 2009

Simon School Working Paper No. FR 09-10

Abstract:     
I examine oligopolistic competition for time inconsistent consumers. The two cases of investment (health clubs) and leisure goods (credit cards) have different implications for strategy. For leisure goods the firms offer introductory rates at the fully rational consumer level, but consumers end up paying higher fixed rates later. In the limit, the markups go to zero. For investment goods there is a non-trivial cutoff of consumer naivete above which the market equilibrium is as if the consumers are rational. Below the cutoff the firms offer schedules such that consumers pay the membership fee, but do not attend.

Keywords: time inconsistent consumers, imperfect competition, product differentiation, credit cards

JEL Classifications: D03, D14, G21, L13

Working Paper Series

Date posted: March 29, 2009 ; Last revised: April 20, 2009

Suggested Citation

Alexandrov, Alexei, Strategic Implications of Competing for Consumers with Time Inconsistent Preferences (March 23, 2009). Simon School Working Paper No. FR 09-10. Available at SSRN: http://ssrn.com/abstract=1367427


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Alexei Alexandrov (Contact Author)
Simon Graduate School of Business, University of Rochester ( email )
C Simon Hall, 3-110P
Box 270100
Rochester, NY 14627-0100
United States
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