TY  - GEN
AB  - This paper is concerned with the situation in which a profit-maximizing monopolist faces
consumers that are diverse not only in their preferences but also in their levels of bounded
rationality. The behavioral phenomenon considered here is the attraction effect when choices
are made across categories. Using the standard second-degree price discrimination model,
the optimal menu of contracts that screens consumers' types is characterized. The benefit of
discriminating consumers based on their preference and cognitive limitation is always higher
than its cost. In other words, the monopolist can exploit consumers and increase his profit
with this contract. The model provides a possible explanation for the apparent puzzle why
one may observe that the same quality products are priced differently under different labels.
Moreover, this contract is welfare improving.
DA  - 2013
KW  - bounded rationality
KW  - attraction effect
KW  - contract design
KW  - welfare
LA  - eng
PY  - 2013
SN  - 0931-6558
SP  - 27-
TI  - Welfare Improving Discrimination based on Cognitive Limitations
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29014670
Y2  - 2024-11-22T04:17:51
ER  -