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

Author

Listed:
  • Sule Alan

    (University of Essex)

  • Dean Karlan

    (Economic Growth Center, Yale University)

  • Mehmet Cemalcilar

    (Yapi Kredi Bank, Istanbul Turkey)

  • Jonathan Zinman

    (Dartmouth College)

Abstract

Models of shrouding predict that firms lack incentives to compete on add-on prices. Working with a large Turkish bank to test SMS direct marketing promotions to 108,000 existing checking account holders, we find that messages promoting a large discount on the overdraft interest rate reduce overdraft usage. In contrast, messages that mention overdraft availability without mentioning price increase usage. Neither change persists long after messages stop, suggesting that induced overdrafting is not habit-forming. Our results are consistent with a model of limited memory and attention.

Suggested Citation

  • Sule Alan & Dean Karlan & Mehmet Cemalcilar & Jonathan Zinman, 2015. "Unshrouding Effects on Demand for a Costly Add-on: Evidence from Bank Overdrafts in Turkey," Working Papers 1044, Economic Growth Center, Yale University.
    • Handle: RePEc:egc:wpaper:1044
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    References listed on IDEAS

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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. Johannes Johnen, 2020. "Dynamic competition in deceptive markets," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 375-401, June.
    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.

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    More about this item

    Keywords

    contingent charges; limited attention; salience; advertising; habit formation; consumer banking; retail banking; deposit accounts;
    All these keywords.

    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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