Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/313742 
Year of Publication: 
2024
Citation: 
[Journal:] The RAND Journal of Economics [ISSN:] 1756-2171 [Volume:] 55 [Issue:] 4 [Publisher:] Wiley [Year:] 2024 [Pages:] 603-626
Abstract: 
Abstract This article analyses how consumers' habit formation and addiction affect firms' pricing policies. I consider both sophisticated consumers, who realize that their current consumption will affect future tastes, and “naive” consumers, who do not. The optimal contract for sophisticated consumers is a two‐part tariff. The main result is that the optimal pricing pattern when the consumer is naive is a “bargain then rip‐off” contract, namely a fixed fee, with the first units priced below cost, and then priced above marginal cost. This holds both under symmetric and asymmetric information about the consumers' degree of sophistication.
Subjects: 
addiction
habit formation
non‐linear pricing
naivety
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Published Version
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.