Why Firms' Exploitation of Consumer Myopia May Benefit Myopic Consumers

Abstract:     
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

Accepted Paper Series