Bank overdraft pricing and myopic consumers

Marlon L. Williams

Economics Letters, 2016, vol. 139, issue C, 84-87

Abstract: In recent years, banks have routinely earned annual percentage rates of over 1,000 percent on overdraft services. Such returns are staggeringly high, especially in an arguably competitive industry; and consequently, consumer protection groups have been lobbying for increased oversight of bank overdraft fees (and similar fees). In the context of a model proposed by Gabaix and Laibson 2006, I find support for the argument that banks target myopic consumers — consumers who do not consider the add-on good when choosing the base product. Using demographic characteristics to proxy for the proportion of myopic consumers, I find results that are consistent with Gabaix and Laibson 2006 in the pricing of bank overdraft services.

Keywords: Banks; Overdraft; Myopic consumers; Bank pricing; Add-on pricing (search for similar items in EconPapers)
JEL-codes: D4 L1 L8 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:139:y:2016:i:c:p:84-87

DOI: 10.1016/j.econlet.2015.12.022

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