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Consumer exploitation and notice periods

Takeshi Murooka and Marco Schwarz

Economics Letters, 2019, vol. 174, issue C, 89-92

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.

Keywords: Notice periods; Procrastination; Present bias; Time inconsistency; Consumer naivete (search for similar items in EconPapers)
JEL-codes: D04 D18 D21 D40 D90 L51 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:ecolet:v:174:y:2019:i:c:p:89-92