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Optimal menu of menus with self-control preferences

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Author Info

  • Susanna Esteban

    ()
    (Pennsylvania State University - Department of Economics)

  • Eiichi Miyagawa

    ()
    (Columbia University - Department of Economics)

Abstract

This paper studies how a seller should design its price schedule when consumers' preferences are subject to temptation. As in Gul and Pesendorfer (2001), consumers exercise costly self-control to some degree and foresee their impulsive behavior and self-control. Since consumers may pay a premium for an option set that is less tempting, the seller may offer multiple small menus. Building on the standard model of adverse selection and second-degree price discrimination, we characterize the optimal menu of menus for the seller. In particular, we show that if consumers are tempted by goods of higher quality, the seller can achieve perfect discrimination: consumers' choices appear as if the seller can observe consumers' preferences directly. To achieve this, the seller "decorates" menus by adding items that are never chosen but are tempting to consumers.

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File URL: http://www.econ.columbia.edu/RePEc/pdf/DP0405-11.pdf
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Bibliographic Info

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0405-11.

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Length: 34 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:clu:wpaper:0405-11

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Cited by:
  1. Michael D. Grubb, 2006. "Selling to Overconfident Consumers," Discussion Papers 06-018, Stanford Institute for Economic Policy Research.
  2. Esteban, Susanna & Miyagawa, Eiichi, 2006. "Temptation, self-control, and competitive nonlinear pricing," Economics Letters, Elsevier, vol. 90(3), pages 348-355, March.
  3. Kalyan Chatterjee & R. Vijay Krishna, 2005. "Menu Choice, Environmental Cues and Temptation: A “Dual Self” Approach to Self-control," Levine's Working Paper Archive 784828000000000576, David K. Levine.
  4. Erzo F.P. Luttmer & Richard J. Zeckhauser, 2008. "Schedule Selection by Agents: from Price Plans to Tax Tables," NBER Working Papers 13808, National Bureau of Economic Research, Inc.
  5. Wojciech Olszewski, 2011. "A model of consumption-dependent temptation," Theory and Decision, Springer, vol. 70(1), pages 83-93, January.
  6. Joaquín Gómez Miñambres, 2011. "Temptation, horizontal differentiation and monopoly pricing," Economics Working Papers we1124, Universidad Carlos III, Departamento de Economía.
  7. Natalia Shestakova, 2010. "Overcoming Consumer Biases in the Choice of Pricing Schemes: A Lab Experiment," CERGE-EI Working Papers wp418, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  8. Kalyan Chatterjee & R. Vijay Krishna, 2009. "A "Dual Self" Representation for Stochastic Temptation," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 148-67, August.

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