Competing for Consumers with Self-control Problems

13 Pages Posted: 29 Mar 2009 Last revised: 12 Sep 2011

See all articles by Alexei Alexandrov

Alexei Alexandrov

Independent; affiliation not provided to SSRN

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

Alexandrov, Alexei and Alexandrov, Alexei, Competing for Consumers with Self-control Problems (September 12, 2011). Simon School Working Paper No. FR 09-10, Available at SSRN: https://ssrn.com/abstract=1367427 or http://dx.doi.org/10.2139/ssrn.1367427

Alexei Alexandrov (Contact Author)

affiliation not provided to SSRN

Independent