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The Effects of Regulating Hidden Add‐On Costs

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  • K. JEREMY KO
  • JARED WILLIAMS

Abstract

We examine the welfare effects of price and disclosure regulation in a model where firms can shroud add‐on costs, such as penalty fees for consumer financial products. Such regulation can increase or decrease welfare even when there are no direct costs. There are, however, strong complementarities between price controls and disclosure mandates: conditional on disclosure being mandated, price controls always (weakly) increase welfare, and conditional on prices being sufficiently constrained, disclosure mandates always (weakly) increase welfare.

Suggested Citation

  • K. Jeremy Ko & Jared Williams, 2017. "The Effects of Regulating Hidden Add‐On Costs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(1), pages 39-74, February.
    • Handle: RePEc:wly:jmoncb:v:49:y:2017:i:1:p:39-74
    DOI: 10.1111/jmcb.12368
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    References listed on IDEAS

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    Cited by:

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    2. Rasch, Alexander & Thöne, Miriam & Wenzel, Tobias, 2020. "Drip pricing and its regulation: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 353-370.
    3. Gu, Yiquan & Wenzel, Tobias, 2020. "Curbing obfuscation: Empower consumers or regulate firms?," International Journal of Industrial Organization, Elsevier, vol. 70(C).

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