 Shrouded Attributes and the Curse of EducatoinDavid Laibson and Xavier Gabaix No 673, 2004 Meeting Papers from Society for Economic Dynamics Abstract: Some consumers fail to observe shrouded product attributes when they buy a new product. For example, an account holder may not know their bank's fee schedule. Firms will choose high shrouded fees and compete to attract consumers with loss-leader base goods: e.g., banks will offer free gifts for opening an account and then snare naive consumers with high fees for bouncing a check. Sophisticated consumers take the free gifts and avoid the shrouded fees. Under weak conditions, firms will not be able to profitably attract consumers by advertising low add-on prices, since sophisticated consumers would rather pool with naive consumers at shrouded firms then switch to transparent firms with low add-on fees and no free gifts. Bertrand competition breaks down and monopoly pricing of the add-on persists even in markets with high levels of competition and costless advertising Keywords: bounded rationality; behavioral economics; behavioral industrial organization; shrouded attributes; loss leader; myopia; add-on; profit center; complexity; confusion; discrete choice. (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:red:sed004:673 Access Statistics for this paper More papers in 2004 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC. |
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