Temptation and Self-Control in a Market for Durable Goods

Abstract

Consumers may purchase durable goods on the basis of short-term temptation, as well as their long-term interests. I adapt Gul and Pesendorfer's (2001) representation of self-control preferences to a market for durable goods. Consumers' temptation will increase profit, and can ameliorate a monopoly seller's own time-inconsistency problem. A low degree of temptation will hurt consumers and decrease total surplus in the market, but high enough temptation will augment consumer and total surplus.