Consumer Exploitation and Notice Periods

Takeshi Murooka and Marco Schwarz
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Takeshi Murooka: Osaka University

No 109, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

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: 2018-08-02
New Economics Papers: this item is included in nep-cta and nep-mic
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Journal Article: Consumer exploitation and notice periods (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:109

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