A Simple Framework for Estimating Consumer Benefits from Regulating Hidden Fees

15 Pages Posted: 4 Oct 2014  

Sumit Agarwal

National University of Singapore

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC)

Neale Mahoney

University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Johannes Stroebel

New York University (NYU); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: October 2, 2014

Abstract

Policymakers are increasingly turning to regulation to reduce hidden or non-salient fees. Yet the overall consumer benefits from these polices are uncertain because firms may increase other prices to offset lost fee revenue. We show that the extent to which firms offset reduced hidden fee revenue is determined by a simple equation that combines two “sufficient statistics,” which can be estimated or calibrated in a wide range of settings: (i) a parameter that captures the degree of market competitiveness and (ii) a parameter that captures the salience of the hidden fee. We provide corroborating evidence for this approach by drawing upon evidence on the effect of fee regulation under the 2009 CARD Act. We also illustrate the applicability of our approach by using the framework to assess a hypothetical regulation of airline baggage fees.

Keywords: Consumer Financial Regulation, Fees, Hidden Fees, Waterbed Effect, CARD Act, Airline baggage fees

Suggested Citation

Agarwal, Sumit and Chomsisengphet, Souphala and Mahoney, Neale and Stroebel, Johannes, A Simple Framework for Estimating Consumer Benefits from Regulating Hidden Fees (October 2, 2014). Available at SSRN: https://ssrn.com/abstract=2504516 or http://dx.doi.org/10.2139/ssrn.2504516

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street, SW
Washington, DC 20219
United States
202-649-5533 (Phone)

Neale Mahoney

University of Chicago Booth School of Business ( email )

5807 South Woodlawn Ave
Chicago, IL 60637
United States
773.702.9278 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Johannes Stroebel (Contact Author)

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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