IDEAS home Printed from https://ideas.repec.org/a/bla/jpbect/v10y2008i4p673-684.html
   My bibliography  Save this article

Competition over Time-Inconsistent Consumers

Author

Listed:
  • DANIEL GOTTLIEB

Abstract

How do firms respond to consumers' time inconsistency? This paper studies the optimal design of nonexclusive contracts under competition. It shows that nonexclusivity creates a stark asymmetry between immediate-costs goods and immediate-rewards goods. For immediate-cost goods nonexclusivity does not affect the equilibrium and, when consumers are sophisticated, the efficient allocation is achieved. When consumers are partially naive, the optimal sales tax may be either positive or negative and depends on parameters that are hard to estimate. In the case of immediate-rewards goods, however, the equilibrium features marginal-cost pricing and is always inefficient. Moreover, the optimal tax does not depend on the consumers' degree of naiveté and is a function of parameters that are easy to assess. Copyright © 2008 Wiley Periodicals, Inc..

Suggested Citation

  • Daniel Gottlieb, 2008. "Competition over Time-Inconsistent Consumers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(4), pages 673-684, August.
  • Handle: RePEc:bla:jpbect:v:10:y:2008:i:4:p:673-684
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9779.2008.00381.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Paul Heidhues & Botond Köszegi, 2004. "The Impact of Consumer Loss Aversion on Pricing," CIG Working Papers SP II 2004-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    2. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters,in: Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74 Edward Elgar Publishing.
    3. Manuel Amador & Iván Werning & George-Marios Angeletos, 2006. "Commitment vs. Flexibility," Econometrica, Econometric Society, vol. 74(2), pages 365-396, March.
    4. Stefano DellaVigna & Ulrike Malmendier, 2004. "Contract Design and Self-Control: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 119(2), pages 353-402.
    5. Goldman, Steven Marc, 1979. "Intertemporally Inconsistent Preferences and the Rate of Consumption," Econometrica, Econometric Society, vol. 47(3), pages 621-626, May.
    6. Mathias Dewatripont, 1988. "Commitment Through Renegotiation-Proof Contracts with Third Parties," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 377-390.
    7. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
    8. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
    9. Oliver D. Hart & Jean Tirole, 1988. "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, Oxford University Press, vol. 55(4), pages 509-540.
    10. Mathias Dewatripont, 1988. "Commitment through renegotiation-proof contacts with third parties," ULB Institutional Repository 2013/9569, ULB -- Universite Libre de Bruxelles.
    11. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
    12. Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
    13. Jonathan Gruber & Botond Köszegi, 2001. "Is Addiction "Rational"? Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1261-1303.
    14. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
    15. Stefano DellaVigna & Ulrike Malmendier, 2006. "Paying Not to Go to the Gym," American Economic Review, American Economic Association, vol. 96(3), pages 694-719, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Haavio, Markus & Kotakorpi, Kaisa, 2016. "Sin licenses revisited," Journal of Public Economics, Elsevier, vol. 144(C), pages 40-51.
    2. Christensen, Else Gry Bro & Nafziger, Julia, 2016. "Packaging of sin goods – Commitment or exploitation?," Journal of Economic Behavior & Organization, Elsevier, vol. 122(C), pages 62-74.
    3. Alberto Bisin & Alessandro Lizzeri & Leeat Yariv, 2015. "Government Policy with Time Inconsistent Voters," American Economic Review, American Economic Association, vol. 105(6), pages 1711-1737, June.
    4. Rodrigue Mendez, 2012. "Predatory Lending," Working Papers hal-00991948, HAL.
    5. Carolina Laureti & Ariane Szafarz, 2017. "Behavioral Banking: A Theory of the Banking Firm with Time-Inconsistent Depositors," Working Papers CEB 17-028, ULB -- Universite Libre de Bruxelles.
    6. Hanming Fang & Zenan Wu, 2017. "Life Insurance and Life Settlement Markets with Overconfident Policyholders," NBER Working Papers 23286, National Bureau of Economic Research, Inc.
    7. Michael D. Grubb, 2015. "Overconfident Consumers in the Marketplace," Journal of Economic Perspectives, American Economic Association, vol. 29(4), pages 9-36, Fall.
    8. Schumacher, Heiner, 2016. "Insurance, self-control, and contract flexibility," European Economic Review, Elsevier, vol. 83(C), pages 220-232.
    9. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
    10. Takeshi Murooka & Marco A. Schwarz, 2016. "The Timing of Choice-Enhancing Policies," CESifo Working Paper Series 5983, CESifo Group Munich.
    11. Michael Grubb, 2015. "Behavioral Consumers in Industrial Organization: An Overview," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 247-258, November.
    12. Michael D. Grubb, 2015. "Behavioral Consumers in Industrial Organization," Boston College Working Papers in Economics 879, Boston College Department of Economics.
    13. Markus Haavio & Kaisa Kotakorpi, 2012. "Sin Licenses Revisited," CESifo Working Paper Series 4010, CESifo Group Munich.
    14. Carolina Laureti & Ariane Szafarz, 2012. "The Time-Inconsistency Factor: How Banks Adapt to their Mix of Savers," Working Papers CEB 12-035, ULB -- Universite Libre de Bruxelles.
    15. Lizzeri, Alessandro & Yariv, Leeat, 2015. "Collective Self Control," CEPR Discussion Papers 10458, C.E.P.R. Discussion Papers.
    16. Paul Heidhues & Botond Koszegi, 2010. "Exploiting Naivete about Self-Control in the Credit Market," American Economic Review, American Economic Association, vol. 100(5), pages 2279-2303, December.
    17. Carolina Laureti & Ariane Szafarz, 2014. "Having it Both Ways: A Theory of the Banking Firm with Time-Consistent and Time-Inconsistent Depositors," Working Papers CEB 14-011, ULB -- Universite Libre de Bruxelles.
    18. Daniel Gottlieb & Kent Smetters, 2012. "Narrow Framing and Life Insurance," NBER Working Papers 18601, National Bureau of Economic Research, Inc.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jpbect:v:10:y:2008:i:4:p:673-684. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/apettea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.