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Consumer protection and contingent charges

Listed author(s):
  • Armstrong, Mark
  • Vickers, John

Contingent charges for financial services, such as fees for unauthorized overdrafts, are often controversial. We study the economics of contingent charges in a stylized setting with naive and sophisticated consumers. We contrast situations where the naive benefit from the presence of sophisticated consumers with situations where competition works to subsidize the sophisticated at the expense of the naive, arguably unfairly. The case for regulatory intervention in these situations depends in good part, but not only, on the weight placed on distributional concerns. The economic and legal issues at stake are well illustrated by a case on bank charges recently decided by the UK Supreme Court.

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File URL: https://mpra.ub.uni-muenchen.de/37239/1/MPRA_paper_37239.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37239.

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Date of creation: Mar 2012
Handle: RePEc:pra:mprapa:37239
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  1. Schwartz, Alan & Wilde, Louis L., 1983. "Imperfect Information in Markets for Contract Terms: The Examples of Warranties and Security Interests," Working Papers 480, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Spiegler, Ran, 2014. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, number 9780199334261, April.
  3. Glenn Ellison, 2005. "A Model of Add-On Pricing," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 585-637.
  4. Kosfeld, Michael & Schüwer, Ulrich, 2011. "Add-on Pricing, Naive Consumers, and the Hidden Welfare Costs of Education," CEPR Discussion Papers 8636, C.E.P.R. Discussion Papers.
  5. Michael D. Grubb, 2015. "Consumer Inattention and Bill-Shock Regulation," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 219-257.
  6. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 505-540.
  7. Victor Stango & Jonathan Zinman, 2011. "Limited and varying consumer attention: evidence from shocks to the salience of bank overdraft fees," Working Papers 11-17, Federal Reserve Bank of Philadelphia.
  8. Mark Armstrong & John Vickers & Jidong Zhou, 2009. "Consumer Protection and the Incentive to Become Informed," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 399-410, 04-05.
  9. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  10. Russell Cooper & Thomas W. Ross, 1984. "Prices, Product Qualities and Asymmetric Information: The Competitive Case," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 197-207.
  11. Alvaro Sandroni & Francesco Squintani, 2007. "Overconfidence, Insurance, and Paternalism," American Economic Review, American Economic Association, vol. 97(5), pages 1994-2004, December.
  12. repec:esx:essedp:643 is not listed on IDEAS
  13. 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.
  14. Victor Stango & Jonathan Zinman, 2009. "What Do Consumers Really Pay on Their Checking and Credit Card Accounts? Explicit, Implicit, and Avoidable Costs," American Economic Review, American Economic Association, vol. 99(2), pages 424-429, May.
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