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Botond Koszegi (Central European University) (Webinar)

1 December 2021 @ 12:00 - 13:15

 

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Details

Date:
1 December 2021
Time:
12:00 - 13:15
Event Category:
Academic Events

” Procrastination Markets ”

 

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. As in other work, consumers fail to switch to better options after signing up with a firm, so at that stage they exert little downward pressure on the prices they pay. Unlike in other work, however, consumers — falsely expecting to do still better in the future — are not keen on starting with the best available offer, so at this stage they do not generate much price competition either. 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 facilitates procrastination and thereby potentially raises prices. By implication, continuous changes in the environment can, through a self-reinforcing entry or marketing process, lead to discontinuous changes in market outcomes. Sign-up deals serve their classically hypothesized role of returning ex-post profits to consumers extremely poorly, while in other senses they exacerbate the failure of price competition.