Consumer Exploitation and Notice Periods

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

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.

• Item Type: Paper
• Keywords: notice periods; procrastination; present bias; time inconsistency; consumer naivete
• Faculties: Economics > Collaborative Research Center Transregio "Rationality and Competition"
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D04, D18, D21, D40, D90, L51
• Language: English