Impatient Consumers Research Articles

Deliberate shortage in live-streaming commerce

Live-streaming commerce has gained significant traction in recent years as an additional channel employed by online retailers to engage consumers in real-time interactions. However, it is essential to highlight the growing prevalence of limited sales as a popular marketing strategy within these live-streaming channels, resulting in an inability to fulfill all consumer demands. Surprisingly, this phenomenon has gone largely unnoticed in previous literature. This paper aims to bridge this gap by delving into the impact of product shortages within the realm of live-streaming commerce. To accomplish this objective, we introduce a stylized model that captures the strategic interactions between online retailers and consumers within live-streaming channels featuring rationed product availability. Our findings reveal that the online retailer’s profit exhibits a unimodal trend concerning the quantity of products offered in the live-streaming channel when the product value falls within a non-extreme range. In simpler terms, deliberately limiting product availability in live-streaming commerce can lead to significantly higher profits, incentivizing retailers to implement rationing strategies. Moreover, contrary to conventional expectations that consumers anticipate a greater supply of products than the retailer intends to provide, we uncover that consumers expect a lower quantity when the potential product value is relatively small. Finally, our research highlights that while live-streaming channels attract consumers with high patience, encouraging their engagement, impatient consumers who favor traditional online channels may face long-term adverse effects due to the retailer’s strategic pricing response. We validate the robustness of our main findings by exploring various extensions, such as the influence of strategic waiting behavior, advertising effects and enhanced perceived product value.

Chinese consumers' valuation for prepared plant-based meat products: Does environmental information matter?

Despite the growing interest in innovative nonanimal protein-prepared foods, knowledge about consumer demand for these newly prepared foods and their potential scope in the market could be improved. This study reports the results of a discrete choice experiment on consumers' (n=1245) willingness to pay (WTP) for prepared plant-based meat (PPBM) in the context of Chinese food culture. Consumers were randomly assigned to a treated group with additional environmental information about PPBM. The estimation results of the random parameter logit model showed that when environmental information was provided, consumer preferences and WTP for frozen meatballs with mixed meat (beef-based and soy protein-based meat) and PBM (pure soy protein-based meat) significantly increased. However, their preference and WTP for food quality and safety attributes of meatballs decreased. Simultaneously, the availability of information reveals the heterogeneity of preferences. This study found that positive WTP for PPBM was limited to consumers with a low degree of food technology neophobia (FTN) and that consumers with a high degree of FTN may avoid purchasing meatballs made from PBM. In contrast, consumers with a higher time preference (i.e., impatient consumers) were likelier to pay for PPBM meatballs. PRACTICAL APPLICATION: PPBM is especially valuable in developing innovative nonanimal protein-prepared foods, and China has the potential to become the largest PPBM food market. Understanding consumers' preference for PPBM products and the impact of information provision on their WTP will assist food companies in devising suitable strategies for the development of new PPBM products. The findings of this study provide targeted market insights for the food industry to help guide the development of plant-based meat products more effectively.

Coupons versus Rebates: An Economic–Mathematical Comparative Analysis with Policy Implications

It is very important to understand how promotions offered by sellers to consumers influence consumer and seller behaviors because it helps us study how consumers make their purchase decisions and how sellers determine their sale strategies. Unlike past studies which utilized the classical price discrimination dilemma and focused on sellers’ aspect to divide consumers into two types (higher/lower reservation prices), we focused on the consumers’ perspective and applied neoclassical consumer choice theory to develop a two-period mathematical utility-maximization model to study how different promotions influence consumer and seller behaviors. This mathematical study uncovered several key findings: (1) coupons offer consumers a greater discount compared to rebates with identical discount rates; (2) impatient consumers exhibit a preference for coupons over rebates; (3) coupons generate higher sales than rebates; and (4) sellers may adopt the coupon policy for low-ticket products and the rebate policy for high-ticket products.

A model of digital rights management with user disutility

We develop a model in which software developers react to anticipated digital piracy either by undercutting piracy or by acquiring digital rights management (DRM) technology from a third-party DRM provider. DRM delays pirated copies to an uncertain future time, incentivizing impatient consumers to purchase a legitimate copy immediately. DRM, however, is a source of disutility for users. The somewhat counter-intuitive key results are that developers increase expected profit by credibly agreeing upon release to remove DRM from legitimate copies once DRM has been cracked, but it is not necessarily true that the eventual removal of DRM increases expected buyer welfare relative to indefinitely retained DRM.

Long-Run Saving Dynamics: Evidence from Unexpected Inheritances

Abstract We exploit inheritance episodes to provide novel causal evidence on the long-run effects of a large financial windfall on saving behavior. For identification, we combine a longitudinal panel of administrative wealth reports with variation in the timing of sudden, unexpected parental deaths. We show that after inheritance, net worth converges toward the path established before parental death, with only one-third of the initial windfall remaining after nine years. We interpret these findings through the lens of a generalized consumption-saving framework. To quantitatively replicate this behavior, life-cycle consumption models require impatient consumers and strong precautionary saving motives.

Do electric vehicles need subsidies in the UK?

We analyse the total cost of ownership of petrol, diesel, hybrid electric vehicles, plug-in hybrid electric vehicles and battery electric vehicles in the UK over 2017–2029. We do this for large, medium and small cars, under assumptions of 0%, 6%, 30% and 60% discount rates. We find that some electric car models from mass market brands are close to reaching cost parity with their petrol, diesel and hybrid counterparts, but subsidies would accelerate their uptake, especially for impatient consumers with high discount rates. Plug-in hybrid electric vehicles are not worth the effort because, although relatively low, their CO2 emissions are non-zero, and their purchase price is as high or even higher than that of battery electric vehicles. A subsidy of £4,500 or an exemption from the 20% VAT, perhaps capped at £4,500, would accelerate mass market penetration of battery electric vehicles in the UK. If decarbonising road transport were not as urgent as it is, the market for battery electric vehicles could be left to develop on its own, without government intervention. However, because the cost of batteries is not falling fast enough, subsidies are needed in the short term.

Pricing Sovereign Debt in Resource-Rich Economies

This paper investigates the link between commodity price movements and risk premiums in resource-dependent,developing economies. I develop a stochastic general equilibrium model of a small open economy that receives a stream of resourc erevenues.The government sells bonds to foreign investors which it can renege on in the future, at some cost, whilst international investors form expectations on the likelihood of sovereign default. This delivers an endogenous risk premium which is inversely related to the price of oil.The model is able to explain a large proportion of the business cycle fluctuations in interest-rate spreads in resource dependent developing economies. I then ask how specific structural features of developing economies affect the relationship between commodity prices and the optimal price of sovereig ndebt, including:a higher dependence on natural resource revenues, impatient consumers and governments,a higher degree of risk-aversion, and a lower ability to substitute consumption inter-temporally. Including them in the model significantly improves the ability of the model to explain the key macroeconomic co-movements in a resource rich, developing economy context. Model simulations reveal an interesting policy insight. An endogenous risk premium that is driven by falling oil prices, provides an additional rationale for a volatility fund in which liquidity buffers are accumulated to manage debt repayments. These buffers should be larger the stronger the link between oil prices and the domestic economy is, the more impatient policymakers are and the more willing they are to substitute current for future consumption.

Exploring the relationships between impatience, savings automation, and financial welfare

The Behavioral Life‐Cycle hypothesis (Thaler & Shefrin, ) models consumers as having both impatient “doer” preferences, representing their desire to spend now, and patient “planner” preferences, representing long‐run welfare considerations. The Behavioral Life‐Cycle hypothesis suggests that those with doer preferences may benefit from strategies that constrain their present behavior and promote saving for the future, like automating deposits into savings accounts. We analyze over 4,000 responses from the nationally representative National Financial Well‐Being Survey to (a) describe consumer characteristics associated with the decision to automate savings deposits, and (b) explore whether automation is related to improved financial welfare, especially for impatient consumers. We find that savings automation is positively associated with financial socialization (whether the respondent's family discussed financial matters growing up) and financial skill (the ability to act on financial knowledge). We also find that impatient consumers—relative to those with stronger planner preferences—have fewer liquid savings, lower financial well‐being, less confidence in their ability to raise $2,000, and more difficulty paying bills. However, as predicted, these differences between consumers with doer and planner preferences largely disappear for those who automate savings deposits. We discuss implications of this research for financial planners in helping clients improve financial welfare.

Peak Period Pricing Strategies in the Presence of Customer Impatience and Store and Time Flexibility

Should a service firm charge higher prices during peak periods? We examine this question formally by analyzing a stylized duopoly model where firms compete for homogeneously impatient consumers. We consider four settings, defined by whether consumers are (i) flexible in their choice of store (where) and/or (ii) flexible in their choice of shopping time (when). For each setting, we use the concept of a rational expectation equilibrium to characterize how consumers endogenously segment themselves regarding where and when to shop to avoid congestion. We then examine how the firms can profitably influence consumers' self-segmentation process by employing the peak-period pricing strategy. Our analysis shows that if consumers are not flexible in their store choice, then both firms should employ peak-period pricing. However, if consumers are flexible in their store choice, then it is possible for both firms, neither firm, or one firm to employ peak-period pricing, depending on the level of competitive advantage and differentiation. If consumers are also flexible in time, then it is easier for the firm with the competitive advantage to retain its customers and hence more likely that this firm will employ peak-period pricing. When consumers have store or time flexibility, we find that an increase in impatience will always benefit the firms. We also find that greater impatience makes consumers more willing to avoid congestion, making their self-segmentation less responsive to pricing. Consequently, it is more likely that firms will employ peak-period pricing and set a higher peak-period price. Finally, we incorporate heterogeneity in consumers' store valuations and find that such exogenous segmentation makes it more likely for firms to employ peak-period pricing, but not necessarily higher peak-period prices.

Smart Products for Sharing

Sharing markets create mutual insurance for consumers who are unsure about their future needs for goods, thus rendering products more valuable both before and after the purchase. By embedding intelligence in their products, enabling them to sense, monitor, and authorize transfers between users, firms can economically participate in the collaborative consumption of their goods after they have been sold. Building on a dynamic model with overlapping generations of heterogeneous agents, we determine a firm's jointly optimal product price and sharing tariff. The active use of product intelligence as a gatekeeper for collaborative consumption, with a positive price for sharing, tends to narrow the gap between the retail and the equilibrium price in the sharing market. Because of its tendency to decrease the demand for ownership, the use of smart products with a positive sharing tariff does not always maximize the firm's overall expected profits. A positive sharing tariff tends to be profitable with relatively high unit production cost and impatient consumers.

Smart Products for Sharing

ABSTRACTSharing markets create mutual insurance for consumers who are unsure about their future needs for goods, thus rendering products more valuable both before and after the purchase. By embedding intelligence in their products, enabling them to sense, monitor, and authorize transfers between users, firms can economically participate in the collaborative consumption of their goods after they have been sold. Building on a dynamic model with overlapping generations of heterogeneous agents, we determine a firm’s jointly optimal product price and sharing tariff. The active use of product intelligence as a gatekeeper for collaborative consumption can narrow the gap between the retail and the equilibrium price in the sharing market. Because of its tendency to decrease the demand for ownership, the use of smart products with a positive sharing tariff does not always maximize the firm’s overall expected profits. A positive sharing tariff tends to be profitable with relatively high unit production cost and impatient consumers.

The (In)validity of the Ricardian equivalence theorem–findings from a representative German population survey

In this paper, we utilize data from a German population survey to test the validity of the Ricardian equivalence theorem (RET). In 2013, 2,000 representatively chosen people were asked whether they have altered their consumption and saving behavior in response to the significant increase in public debt that occurred between 2008 and 2012. Our findings reveal notable deviations from RET. However, we cannot rule out that the majority of Germans behave ‘partly’ in a Ricardian manner. This could either indicate a large fraction of rule-of-thumb or impatient consumers in the economy, or a widely prevalent mix of partially Ricardian and partially non-Ricardian behavior. Moreover, using multinomial logit regressions, we find that individuals’ consumption responses are significantly related to their economic situation, time preferences, education, and age.

Product Pricing in a Peer-to-Peer Economy

The emergence of a collaborative economy has been driven by advances in information technology that allow consumers to borrow and rent goods among peers on a secondary sharing market. In a dynamic setting, consumers make intertemporal decisions about purchases and their participation in the sharing market. This study introduces an overlapping-generations model to analyze product pricing and consumer choice with and without a sharing market. The model quantifies the impacts of a peer-to-peer economy on the demand for ownership, the product price, and all participants’ payoffs, including consumer surplus, profits, and social welfare. Given consumers that are heterogeneous with respect to their consumption needs and valuations, it illustrates which of them are prone to participate in a sharing economy and whether a retailer (or manufacturer) can benefit from the presence of a secondary exchange. A sharing market tends to increase the price of new products by a “sharing premium,” which positively depends on the retailer’s commitment ability. The price increment becomes relatively smaller for higher-cost products. Low-cost products and sufficiently impatient consumers together make a peer-to-peer economy unattractive for retailers. For high-cost products, however, the latter stand to gain from the existence of a sharing market. Most important, the introduction of a peer-to-peer economy increases both consumer surplus and social welfare, thus creating an implicit imperative for a social planner to help promote collaborative consumption, for instance, by providing incentives for retailers and manufacturers that tend to offset possible expected negative payoff effects from consumer sharing.

Instruments, rules, and household debt: the effects of fiscal policy

In this paper we look at the interplay between the level of household leverage in the economy and fiscal policy. When the fiscal rule is defined on lump-sum transfers, government spending or consumption taxes, the impact multipliers of transitory fiscal shocks become substantially amplified in an environment of easy access to credit by impatient consumers. However, when the government reacts to debt deviations by raising distortionary taxes on income, labour or capital, the effects of household debt on the size of the impact output multipliers vanish or even reverse. We also find that differences in fiscal multipliers between high and low indebtedness regimes belong basically to the short run, whereas the long-run multipliers are barely affected by the level of household debt in the economy. Finally, we find that fiscal shocks exert an unequal welfare effect on impatient and patient households that can even be of opposite signs.

Management Insights

Management Insights

Rent Seeking, Tax Policy, and Economic Growth

It is suggested a Romer-Barro - type model of endogenous economic growth where producers contest for distribution of a fixed share of the government’s tax revenue. The proportional contest mechanism is assumed. We studied conditions under which consumers gain or lose due to existence of the Rent seeking, tax policy, and economic growth (RS) opportunities. It is found that RS always decreases rate of growth but nevertheless may raise consumer’s overall utility. RS is advantageous if tax rate is too high or rate of production return is too low. The area of parameters, where RS has positive effect, is larger for more impatient consumers. We study also a static RS production model with heterogeneous producers and show that excessive tax burden creates incentives for RS (which is interpreted as corruption). It is argued that the producers’ support of corruption-free regimes depends on the marginal cost elasticity of the production technologies and may be reached due to technical progress. The results demonstrate that the connection, observed in a number of empirical papers, between economic development and RS may be two - way since it may be caused by factors that influence both RS and economic growth.

Signaling Quality via Queues

We consider an M/M/1 queueing system with impatient consumers who observe the length of the queue before deciding whether to buy the product. The product may have high or low quality, and consumers are heterogeneously informed. The firm chooses a slow or (at a cost) a fast service rate. In equilibrium, informed consumers join the queue if it is below a threshold. The threshold varies with the quality of the good, so an uninformed consumer updates her belief about quality on observing the length of the queue. The strategy of an uninformed consumer has a “hole”: she joins the queue at lengths both below and above the hole, but not at the hole itself. We show that if the prior probability the product has high quality and the proportion of informed consumers are both low, a high-quality firm may select a slower service rate than a low-quality firm. The queue can therefore be a valuable signaling device for a high-quality firm. Strikingly, in some scenarios, the high-quality firm may choose the slow service rate even if the technological cost of speeding up is zero. This paper was accepted by Assaf Zeevi, stochastic models and simulation.

On the Role of Patience in an Insurance Market With Asymmetric Information

AbstractWe analyze a two‐period competitive insurance market that is characterized by the simultaneous presence of moral hazard and adverse selection with regard to consumer time preferences. It is shown that there exists an equilibrium in which patient consumers use high effort and buy an insurance contract with high coverage, whereas impatient consumers use low effort and buy a contract with low coverage or even remain uninsured. This finding may help to explain why the opposite of adverse selection with regard to risk types can sometimes be observed empirically.

A Theory of the Consumption Function, With and Without Liquidity Constraints

This paper argues that the modern stochastic consumption model, in which impatient consumers face uninsurable labor income risk, matches Milton Friedman's (1957) original description of the Permanent Income Hypothesis much better than the perfect foresight or certainty equivalent models did. The model can explain the high marginal propensity to consume, the high discount rate on future income, and the important role for precautionary behavior that were all part of Friedman's original framework. The paper also explains the relationship of these questions to the Euler equation literature, and argues that the effects of precautionary saving and liquidity constraints are often virtually indistinguishable.

Portfolio Choice and Liquidity Constraints

In this paper, we study the infinite-horizon model of household portfolio choice under liquidity constraints and revisit the portfolio specialization puzzle for impatient consumers with access to riskless and risky assets. We consider a labor income process that allows us to decompose the consumption and portfolio effects of permanent and transitory shocks to labor income and show their interaction with liquidity constraints and their relative importance in producing precautionary effects and the portfolio specialization result. We show why habit persistence and risk aversion cannot resolve the puzzle and argue that positive correlation between earnings shocks and stock returns is unlikely to provide a plausible resolution. We then offer an alternative explanation for observed stock holding patterns and the slow emergence of an equity culture. Specifically, we find that relatively small, fixed, stock market entry costs are sufficient to deter households from participating in the stock market. Such entry costs could arise, for example, from informational considerations, sign-up fees, and investor inertia.