Why Firms' Exploitation of Consumer Myopia May Benefit Myopic Consumers

8 Pages Posted: 26 Oct 2012 Last revised: 12 Dec 2012

Hans Zenger

Charles River Associates (CRA)

Date Written: October 13, 2012

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.

Keywords: consumer myopia, pricing, add-ons

JEL Classification: D6, D8, L1

Suggested Citation

Zenger, Hans, Why Firms' Exploitation of Consumer Myopia May Benefit Myopic Consumers (October 13, 2012). Economics Letters, Vol. 118, No. 2, pp. 307-309, 2013. Available at SSRN: https://ssrn.com/abstract=2167364

Hans Zenger (Contact Author)

Charles River Associates (CRA) ( email )

Avenue Louise 81
Brussels, 1050
Belgium

HOME PAGE: http://works.bepress.com/hans_zenger/

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