Why Firms' Exploitation of Consumer Myopia May Benefit Myopic Consumers
Charles River Associates (CRA)
October 13, 2012
Economics Letters, Vol. 118, No. 2, pp. 307-309, 2013
Myopic consumers underestimate the likelihood with which they will require follow-on services for products they purchase. Firms have an incentive to exploit this behavioral bias by skewing their price structure toward high add-on charges. Inadvertently, this skewed price structure provides myopic consumers with a monetary incentive mechanism that tends to inhibit, rather than propel, inefficient consumption decisions.
Number of Pages in PDF File: 8
Keywords: consumer myopia, pricing, add-ons
JEL Classification: D6, D8, L1
Date posted: October 26, 2012 ; Last revised: December 12, 2012
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