Nonlinear Pricing with Self-Control Preferences

Columbia University Economics Discussion Paper No. 0304-03

44 Pages Posted: 23 Oct 2003

See all articles by Susanna Esteban

Susanna Esteban

Pennsylvania State University, College of the Liberal Arts - Department of Economic

Eiichi Miyagawa

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Matthew Shum

Johns Hopkins University - Department of Economics

Date Written: September 24, 2003

Abstract

This paper studies optimal nonlinear pricing for a monopolist when consumers' preferences exhibit temptation and self-control as in Gul and Pesendorfer (2001). Consumers are subject to temptation inside the store but exercise self-control, and those foreseeing large self-control costs do not enter the store. Consumers differ in their preferences under temptation. When all consumers are tempted by more expensive, higher quality choices, the optimal menu is a singleton, which saves consumers from self-control and extracts consumers' commitment surplus. When some consumers are tempted by cheaper, lower quality choices, the optimal menu may contain a continuum of choices.

Keywords: Temptation, Self-Control, Commitment, Nonlinear Pricing, Price Discrimination

JEL Classification: D42, D82, L12, L15

Suggested Citation

Esteban, Susanna and Miyagawa, Eiichi and Shum, Matthew, Nonlinear Pricing with Self-Control Preferences (September 24, 2003). Columbia University Economics Discussion Paper No. 0304-03, Available at SSRN: https://ssrn.com/abstract=452180 or http://dx.doi.org/10.2139/ssrn.452180

Susanna Esteban

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

Eiichi Miyagawa (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States
212-854-3926 (Phone)
212-854-8059 (Fax)

Matthew Shum

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States
410-516-8828 (Phone)

HOME PAGE: http://www.econ.jhu.edu/people/shum/

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