Xavier Gabaix
Economist whose work explains why hidden fees survive competition instead of being competed away.
Who they are
Gabaix works at Harvard on behavioural economics and finance. The 2006 paper with David Laibson is the standard reference for what happens to prices when some consumers are inattentive.
Key papers
Gabaix, X., & Laibson, D. (2006). Shrouded attributes, consumer myopia, and information suppression in competitive markets. Quarterly Journal of Economics, 121(2), 505-540.
Key ideas
If consumers were Bayesian, firms would not shroud information in equilibrium, because hidden add-on prices would be assumed high.
Shrouding may occur in an economy with some myopic or unaware consumers, and this creates an inefficiency.
Where add-ons have close substitutes a curse of debiasing arises, and firms cannot profitably debias consumers by unshrouding. Honesty about hidden costs can go unrewarded.
Concepts on this site
Sources
- doi:10.1162/qjec.2006.121.2.505