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Consumer exploitation and notice periods

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  • Murooka, Takeshi
  • Schwarz, Marco A.

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.

Suggested Citation

  • Murooka, Takeshi & Schwarz, Marco A., 2019. "Consumer exploitation and notice periods," Economics Letters, Elsevier, vol. 174(C), pages 89-92.
    • Handle: RePEc:eee:ecolet:v:174:y:2019:i:c:p:89-92
    DOI: 10.1016/j.econlet.2018.10.036
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    References listed on IDEAS

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    1. Roman Inderst & Marco Ottaviani, 2013. "Sales Talk, Cancellation Terms and the Role of Consumer Protection," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(3), pages 1002-1026.
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    5. Murooka, Takeshi & Schwarz, Marco A., 2018. "The timing of choice-enhancing policies," Journal of Public Economics, Elsevier, vol. 157(C), pages 27-40.
    6. Paul Heidhues & Botond Kőszegi & Takeshi Murooka, 2017. "Inferior Products and Profitable Deception," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 323-356.
    7. Paul Heidhues & Botond Koszegi, 2010. "Exploiting Naivete about Self-Control in the Credit Market," American Economic Review, American Economic Association, vol. 100(5), pages 2279-2303, December.
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    9. Christensen, Else Gry Bro & Nafziger, Julia, 2016. "Packaging of sin goods – Commitment or exploitation?," Journal of Economic Behavior & Organization, Elsevier, vol. 122(C), pages 62-74.
    10. Ted O'Donoghue & Matthew Rabin, 1999. "Incentives for Procrastinators," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 769-816.
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    More about this item

    Keywords

    Notice periods; Procrastination; Present bias; Time inconsistency; Consumer naivete;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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