Seminars

Abstract: We develop models of markets with procrastinating consumers when competition operates, or is supposed to operate, both through the initial selection of providers and through the possibility of switching providers. Paralleling the logic of other work, consumers often fail to switch to better options after signing up with a firm, generating soft competition and high prices at that stage. Unlike in other work, however, consumers who expect to engage in optimal switching behavior in the future are not keen on starting with the best available offer, so competition is soft or non-existent at the initial stage as well. In fact, a competition paradox results: an increase in the number of firms or the intensity of marketing increases the frequency with which a consumer receives switching offers, so it makes procrastination worse and thereby potentially lowers competition and increases prices. By implication, entry can be self-reinforcing, generating discontinuous jumps in market patterns in response to continuous changes in the environment. Sign-up deals, which in existing theories provide a vehicle for returning ex-post profits to consumers, do not help, and if anything worsen, outcomes. And when a consumer does switch away from the initial firm, she might switch to an offer that is as unfavorable as her previous one.

* 본 세미나는 VEAEBES(Virtual East Asia Experimental and Behavioral Economics Seminar series) 주최로 열리는 세미나입니다.

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