Armstrong, Mark and Vickers, John (2012): Consumer protection and contingent charges.
Download (165kB) | Preview
Contingent charges for financial services, such as fees for unauthorized overdrafts, are often controversial. We study the economics of contingent charges in a stylized setting with naive and sophisticated consumers. We contrast situations where the naive benefit from the presence of sophisticated consumers with situations where competition works to subsidize the sophisticated at the expense of the naive, arguably unfairly. The case for regulatory intervention in these situations depends in good part, but not only, on the weight placed on distributional concerns. The economic and legal issues at stake are well illustrated by a case on bank charges recently decided by the UK Supreme Court.
|Item Type:||MPRA Paper|
|Original Title:||Consumer protection and contingent charges|
|Keywords:||Consumer protection; retail banking; bounded rationality; economics of contracts|
|Subjects:||D - Microeconomics > D1 - Household Behavior and Family Economics > D18 - Consumer Protection
G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
|Depositing User:||Mark Armstrong|
|Date Deposited:||09. Mar 2012 19:50|
|Last Modified:||13. Feb 2013 02:34|
Armstrong, Mark, John Vickers and Jidong Zhou. 2009. "Consumer Protection and the Incentive to Become Informed." Journal of the European Economic Association, 7(2-3): 399-410.
Bennett, Matthew. 2012. "What Role Does Economics Have to Play in Contingent Charges Regulations?", in The Pros and Cons of Consumer Protection, Swedish Competition Authority, Stockholm.
Cooper, Russell and Thomas Ross. 1984. "Prices, Product Qualities and Asymmetric Information: The Competitive Case." Review of Economic Studies, 51(2): 197-207.
DellaVigna, Stefano and Ulrike Malmendier. 2006. "Paying not to go to the Gym", American Economic Review, 96(3): 694--719.
Ellison, Glenn. 2005. "A Model of Add-on Pricing." Quarterly Journal of Economics, 120(2): 585-637.
Gabaix, Xavier and David Laibson. 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets." Quarterly Journal of Economics, 121(2): 505-40.
Grubb, Michael. 2011. "Bill Shock: Inattention and Price-Posting Regulation." Mimeo, MIT.
Hermalin, Benjamin, Avery Katz, Richard Craswell. 2007. "Contract Law", in Handbook of Law and Economics (vol 1), eds Polinsky and Shavell. Amsterdam, North-Holland.
Independent Commission on Banking. 2011. Final Report: Recommendations. ICB: London.
Kosfeld, Michael and Ulrich Schüwer. 2011. "Add-on Pricing, Naive Consumers, and the Hidden Welfare Costs of Education." IZA Discussion Paper no. 6061.
Office of Fair Trading. 2006. Calculating Fair Default Charges in Credit Card Contracts. OFT: London.
Office of Fair Trading. 2008. Personal Current Accounts in the UK: An OFT Market Study. OFT: London.
Sandroni, Alvaro and Francesco Squintani. 2007. "Overconfidence, Insurance, and Paternalism", American Economic Review, 97(5): 1994-2004.
Schwartz, Alan and Louis Wilde. 1983. "Imperfect Information in Markets for Contract Terms: The Examples of Warranties and Security Interests." Virginia Law Review, 69(8): 1387-1485.
Shapiro, Carl. 1995. "Aftermarkets and Consumer Welfare: Making Sense of Kodak." Antitrust Law Journal, 63(2): 483-511.
Spiegler, Ran. 2011. Bounded Rationality and Industrial Organization. Oxford: Oxford University Press.
Stango, Victor and Jonathan Zinman. 2009. "What Do Consumers Really Pay on Their Checking and Credit Card Accounts? Explicit, Implicit and Avoidable Costs." American Economic Review, 99(2): 424-29.
Stango, Victor and Jonathan Zinman. 2011. "Limited and Varying Consumer Attention: Evidence from Shocks to the Salience of Overdraft Fees." NBER Working Paper No. 17028.
Whittaker, Simon. 2011. "Unfair Contract Terms, Unfair Prices and Bank Charges". Modern Law Review, 74(1): 106-22.