When consumers do not make an active decision: Dynamic default rules and their equilibrium effects

Keith Ericson

Games and Economic Behavior, 2020, vol. 124, issue C, 369-385

Abstract: Dynamic defaults for recurring purchases determine what happens to consumers enrolled in a product or service who take no action at a decision point. Consumers may face automatic renewal, automatic switching, or non-purchase defaults. Privately optimal dynamic defaults depend on the contributions of adjustment costs versus costless opt-out frictions: both produce inertia under renewal defaults, but differ under non-renewal defaults. Defaults have equilibrium effects on pricing by changing the elasticity of repeat demand. Socially optimal defaults depend on firms' pricing responses as well; more elastic repeat demand restrains price increases on repeat customers and can reduce inefficient switching.

Keywords: Default effects; Subscription products; Procrastination; Forgetting; Opt-out costs; Automatic renewal (search for similar items in EconPapers)
JEL-codes: D01 D10 D83 D86 D90 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: When Consumers Do Not Make an Active Decision: Dynamic Default Rules and their Equilibrium Effects (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:124:y:2020:i:c:p:369-385

DOI: 10.1016/j.geb.2020.08.007

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