Project Details
Projekt
Consumer Inertia and Regulatory Policy
Subject Area
Economic Policy, Applied Economics
Statistics and Econometrics
Economic Theory
Statistics and Econometrics
Economic Theory
Term
since 2023
Project identifier
Deutsche Forschungsgemeinschaft (DFG) - Project number 462020252
The overarching objective of this project is to better understand how consumer inertia affects firms’ strategies, market outcomes, and the suitability of regulatory interventions. For this purpose, this project features three building blocks. In the first block, we aim to develop dynamic market models with behavioral consumers. These models are targeted to explain why consumer inertia is so wide-spread in subscription markets, why policy interventions often fail to activate consumers despite large potential switching gains, and why firms that earn high profits per consumer often refrain from offering even better initial deals to consumers. Importantly, we want to understand the role of technological trends (such as declining costs over time), contract design, consumer learning, and regulation restricting what contracts firms can offer in determining the various dynamic price patterns that lead to “loyalty penalties” (i.e. high prices for inactive consumers). In the second block, we plan to empirically analyze how online firms can use their website design (or choice architecture) to influence consumers’ purchase behavior, and combine our empirical insights with theory to determine what the resulting welfare consequences are. As a first step, we combine experimental measures for consumer mistakes and preferences with cookie data to study how consumers’ journeys are affected by the choice architecture of firms. Based on the empirical regularities, we develop behavioral online-market models that allow the firms’ online choice architecture to influence consumer choices. Thereafter, we will reconsider the data in light of our theories in order to quantify the welfare effects of A/B testing. We anticipate that the online data will help us to understand some issues – such as consumer learning or the lack thereof – that will help formulate dynamic market models in building block one. Based on the findings in the first two blocks and in other projects of this research group, the third block considers important policy questions of the digital economy explicitly allowing for behavioral biases, framing effects, and heterogenous consumer responses to inform the ongoing policy debate about online consumer protection as well as the regulation of large online platforms.
DFG Programme
Research Units
