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Every shroud has a silver lining: The visible benefits of hidden surcharges

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  • de Meza, David
  • Reyniers, Diane

Abstract

Opportunities for shrouded pricing drive down upfront price as firms compete to capture new customers. Unless the surcharge is sufficiently high, consumers are worse off if the practice is banned, assuming Cournot–Nash equilibrium and isoelastic demand.

Suggested Citation

  • de Meza, David & Reyniers, Diane, 2012. "Every shroud has a silver lining: The visible benefits of hidden surcharges," Economics Letters, Elsevier, vol. 116(2), pages 151-153.
    • Handle: RePEc:eee:ecolet:v:116:y:2012:i:2:p:151-153
    DOI: 10.1016/j.econlet.2012.02.027
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    References listed on IDEAS

    as
    1. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters, in: Victor J. Tremblay & Elizabeth Schroeder & Carol Horton Tremblay (ed.), Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74, Edward Elgar Publishing.
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    Citations

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    Cited by:

    1. Michael Kosfeld & Ulrich Schüwer, 2017. "Add-on Pricing in Retail Financial Markets and the Fallacies of Consumer Education," Review of Finance, European Finance Association, vol. 21(3), pages 1189-1216.
    2. K. Jeremy Ko & Jared Williams, 2017. "The Effects of Regulating Hidden Add‐On Costs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(1), pages 39-74, February.
    3. Zenger, Hans, 2013. "Why firms’ exploitation of consumer myopia may benefit myopic consumers," Economics Letters, Elsevier, vol. 118(2), pages 307-309.
    4. Kosfeld, Michael & Schüwer, Ulrich, 2016. "Pricing in retail financial markets and the fallacies of consumer education," SAFE Working Paper Series 47, Leibniz Institute for Financial Research SAFE, revised 2016.
    5. Marco Savioli & Lorenzo Zirulia, 2020. "Does add-on presence always lead to lower baseline prices? Theory and evidence," Journal of Economics, Springer, vol. 129(2), pages 143-172, March.
    6. Klophaus, Richard, 2014. "Should jet fuel surcharges be regulated, and if so, how?," Research in Transportation Economics, Elsevier, vol. 45(C), pages 18-23.
    7. Heidhues, Paul & Köszegi, Botond, 2018. "Behavioral Industrial Organization," CEPR Discussion Papers 12988, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Shrouded prices; Waterbedding; Consumer protection;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General

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