Consumer Exploitation in Competitive Markets

The talk aims to give a non-technical introduction to the behavioral-economics literature on consumer mistakes, and the exploitation thereof in competitive markets. After briefly reviewing a few systematic and well-documented deviations from the rational consumer model that have been widely studied in the behavioral-economics literature, the talk will discuss various mistakes consumers make in financial markets and how firms exploit these.

Paul Heidhues holds the Lufthansa Chair in Competition and Regulation at the European School of Management and Technology (ESMT) in Berlin. Before joining ESMT, Paul was an associate professor for Economic Theory at Bonn Universität from 2005 to 2010 and a research fellow at the Social Science Research Center Berlin (WZB) from 1999 to 2005. He received his Habilitation from the Humboldt Universität zu Berlin in 2005 and his PhD in Economics from Rice University, Houston, Texas in 2000.

Paul worked on numerous topics in Industrial Organization and Competition Policy such as input-market bargaining power, merger control, and collusion. More recently, much of his work focuses on the functioning of markets when consumers are partly driven by psychological factors – such as social preferences, loss aversion, time-inconsistency, or naivete – that the classic consumer model abstracts from. Among other things, he has written on how firms optimally price products and design credit contracts in response to consumers’ psychological tendencies, regulation. His work appeared in leading academic journals such as the American Economic Review, Games and Economic Behavior, Journal of Economic Theory, and the Review of Economic Studies.