Competing for Consumers with Self-control Problems (and Gaining Monopoly Power if Consumers have Less of Those)

Abstract:     
I examine strategic implications of competing for consumers with self-control problems. For investment goods, like health clubs, I find that it is in the firms' best interest to help consumers with their self-control problems (help a consumer actually go to the gym, once a consumer has signed up). With small movements toward rationality, firms increase usage prices in equilibrium. With large movements toward rationality, the market structure might switch from oligopoly to local monopolies. The results are reversed for leisure goods like credit cards.

Keywords: time inconsistent consumers, credit cards, self-control, gyms

JEL Classifications: D03, D14, G21, L13

Working Paper Series