TY - JOUR
T1 - Intertemporal price discrimination with time-inconsistent consumers
AU - Flesch, János
AU - Méder, Zsombor Z.
AU - Peeters, Ronald
AU - Sarafidis, Yianis
PY - 2023/10/5
Y1 - 2023/10/5
N2 - We consider the intertemporal price discrimination problem of a durable good monopolist facing a population of consumers who are time inconsistent. We show that price trajectories, profits and welfare are sensitive to consumers’ first- and second-order beliefs regarding their time preferences. Surprisingly, we find that sales and profits are largest when consumers are sophisticated, i.e., when consumers hold correct expectations on their own future choices. The monopolist is thus unable to take advantage of consumers’ naiveté, and could instead benefit from informing consumers about their true preferences and commitment problems, or otherwise communicate its beliefs about them.
AB - We consider the intertemporal price discrimination problem of a durable good monopolist facing a population of consumers who are time inconsistent. We show that price trajectories, profits and welfare are sensitive to consumers’ first- and second-order beliefs regarding their time preferences. Surprisingly, we find that sales and profits are largest when consumers are sophisticated, i.e., when consumers hold correct expectations on their own future choices. The monopolist is thus unable to take advantage of consumers’ naiveté, and could instead benefit from informing consumers about their true preferences and commitment problems, or otherwise communicate its beliefs about them.
KW - durable goods monopoly
KW - intertemporal price discrimination
KW - time inconsistency
U2 - 10.1016/j.mathsocsci.2023.09.006
DO - 10.1016/j.mathsocsci.2023.09.006
M3 - Article
SN - 0165-4896
VL - 126
SP - 42
EP - 47
JO - Mathematical social sciences
JF - Mathematical social sciences
ER -