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Nonlinear Pricing with Self-Control Preferences

Matthew Shum (), Susanna Esteban () and Eiichi Miyagawa

Economics Working Paper Archive from The Johns Hopkins University,Department of Economics

Abstract: This paper studies optimal nonlinear pricing for a monopolist when consumers' preferences exhibit temptation and self-control as in Gul and Pesendorfer (2001a). Consumers are subject to temptation inside the store but exercise self-control, and those foreseeing large self-control costs do not enter the store. Consumers differ in their preferences under temptation. When all consumers are tempted by more expensive, higher quality choices, the optimal menu is a singleton, which saves consumers from self-control and extracts consumers' commitment surplus. When some consumers are tempted by cheaper, lower quality choices, the optimal menu may contain a continuum of choices.

Date: 2003-09
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Journal Article: Nonlinear pricing with self-control preferences (2007) Downloads
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