8 Pages Posted: 26 Oct 2012 Last revised: 12 Dec 2012
Date Written: October 13, 2012
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: 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
By Bruce Carlin