Competing for Consumers with Self-control Problems
13 Pages Posted: 29 Mar 2009 Last revised: 12 Sep 2011
Date Written: September 12, 2011
Abstract
I examine strategic implications of competing for consumers with self-control problems. For investment goods, like health clubs, I find that the equilibrium sign-up (lump-sum) fees decrease when competition intensifies, similarly to prices in standard oligopoly models. However, the equilibrium attendance (per-unit) price increases due to firms' deteriorated ability to take advantage of the consumers' self-control problems. Moreover, firms earn less profit due to consumers' self-control problems -- the firms have a unilateral incentive to charge per-unit fees lower than the marginal cost, however they cannot make up the lost margins by increasing the lump-sum fee, due to competition. The results are reversed for leisure goods (for example, credit cards).
Keywords: time inconsistent consumers, credit cards, self-control, gyms
JEL Classification: D03, D14, G21, L13
Suggested Citation: Suggested Citation
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