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Unshrouding Effects on Demand for a Costly Add-on: Evidence from Bank Overdrafts in Turkey

Author

Listed:
  • Zinman, Jonathan
  • Karlan, Dean
  • Alan, Sule
  • Cemalcilar, Mehmet

Abstract

The pricing and advertising of tied add-ons and overages have come under increasing scrutiny. Working with a large Turkish bank to test SMS direct marketing promotions to 108,000 existing holders of ?free? checking accounts, we find that promoting a large discount on the 60% APR charged for overdrafts reduces overdraft usage. In contrast, messages mentioning overdraft availability without mentioning price increase usage. Neither change persists long after messages stop, suggesting that induced overdrafting is not habit-forming. We discuss implications for interventions to promote transparency in pricing and advertising, and for models of shrouded equilibria, limited attention, and salience.

Suggested Citation

  • Zinman, Jonathan & Karlan, Dean & Alan, Sule & Cemalcilar, Mehmet, 2015. "Unshrouding Effects on Demand for a Costly Add-on: Evidence from Bank Overdrafts in Turkey," CEPR Discussion Papers 10414, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10414
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    Cited by:

    1. Singh, Nirvikar, 2018. "Financial Inclusion: Concepts, Issues and Policies for India," Santa Cruz Department of Economics, Working Paper Series qt98p5m37s, Department of Economics, UC Santa Cruz.
    2. Daniel Grodzicki & Alexei Alexandrov & Özlem Bedre-Defolie & Sergei Koulayev, 2023. "Consumer Demand for Credit Card Services," Journal of Financial Services Research, Springer;Western Finance Association, vol. 63(3), pages 273-311, June.
    3. M. Savioli & L. Zirulia, 2015. "Add-on pricing: theory and evidence from the cruise industry," Working Papers wp1026, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. 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.
    5. Johannes Johnen, 2020. "Dynamic competition in deceptive markets," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 375-401, June.

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    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G2 - Financial Economics - - Financial Institutions and Services

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