Add-on pricing in retail financial markets and the fallacies of consumer education
AbstractThis paper explores consequences of consumer education on prices and welfare in retail financial markets when some consumers are naive about shrouded add-on prices and firms try to exploit it. Allowing for different information and pricing strategies we show that education is unlikely to push firms to disclose prices towards all consumers, which would be socially effifficient. Instead, price discrimination emerges as a new equilibrium. Further, due to a feedback on prices, education that is good for consumers who become sophisticated may be bad for consumers who stay naive and even for the group of all consumers as a whole. --
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Bibliographic InfoPaper provided by Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt in its series SAFE Working Paper Series with number 47.
Date of creation: 2014
Date of revision:
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consumer education; financial literacy; bounded rationality; competition; regulation;
Find related papers by JEL classification:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-11 (All new papers)
- NEP-GER-2014-04-11 (German Papers)
- NEP-HME-2014-04-11 (Heterodox Microeconomics)
- NEP-MKT-2014-04-11 (Marketing)
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