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Murooka, Takeshi; Schwarz, Marco (2018): Consumer Exploitation and Notice Periods. Collaborative Research Center Transregio 190, Discussion Paper No. 109
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Abstract

Firms often set long notice periods when consumers cancel a contract, and sometimes do so even when the costs of changing or canceling the contract are small. We investigate a model in which a firm offers a contract to consumers who may procrastinate canceling it due to naive present-bias. We show that the firm may set a long notice period to exploit naive consumers.