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Nonlinear pricing with self-control preferences

Esteban, Susanna; Miyagawa, Eiichi; Shum, Matthew

This paper studies optimal nonlinear pricing for a monopolist when consumers' preferences exhibit temptation and self-control as in Gul and Pesendorfer (2001a). Consumers are subject to temptation inside the store but exercise self-control, and those foreseeing large self-control costs do not enter the store. Consumers differ in their preferences under temptation. When all consumers are tempted by more expensive, higher quality choices, the optimal menu is a singleton, which saves consumers from self-control and extracts consumers' commitment surplus. When some consumers are tempted by cheaper, lower quality choices, the optimal menu may contain a continuum of choices.

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Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 0304-03
Published Here
March 24, 2011

Notes

September 2003