Strategic Implications of Competing for Consumers with Time Inconsistent Preferences

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