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Optimal menu of menus with self-control preferences

Susanna Esteban; Eiichi Miyagawa

Title:
Optimal menu of menus with self-control preferences
Author(s):
Esteban, Susanna
Miyagawa, Eiichi
Date:
Type:
Reports
Department(s):
Economics
Persistent URL:
Series:
Department of Economics Discussion Papers
Part Number:
0405-11
Notes:
November 2004
Publisher:
Department of Economics, Columbia University
Publisher Location:
New York
Abstract:
This paper studies how a seller should design its price schedule when consumers' preferences are subject to temptation. As in Gul and Pesendorfer (2001), consumers exercise costly self-control to some degree and foresee their impulsive behavior and self-control. Since consumers may pay a premium for an option set that is less tempting, the seller may offer multiple small menus. Building on the standard model of adverse selection and second-degree price discrimination, we characterize the optimal menu of menus for the seller. In particular, we show that if consumers are tempted by goods of higher quality, the seller can achieve perfect discrimination: consumers' choices appear as if the seller can observe consumers' preferences directly. To achieve this, the seller "decorates" menus by adding items that are never chosen but are tempting to consumers.
Subject(s):
Economics
Item views
304
Metadata:
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Suggested Citation:
Susanna Esteban, Eiichi Miyagawa, , Optimal menu of menus with self-control preferences, Columbia University Academic Commons, .

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