Unshrouding Effects on Demand for a Costly Add-on: Evidence from Bank Overdrafts in Turkey

Models of shrouding predict that firms lack incentives to compete on add-on prices. Working with a large Turkish bank to test SMS direct marketing promotions to 108,000 existing checking account holders, we find that messages promoting a large discount on the overdraft interest rate reduce overdraft usage. In contrast, messages that mention overdraft availability without mentioning price increase usage. Neither change persists long after messages stop, suggesting that induced overdrafting is not habit-forming. Our results are consistent with a model of limited memory and attention.


Issue Date:
2015-01
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/198558
Total Pages:
40
JEL Codes:
D12; D14; G2
Note:
Revision posted January 22, 2016.
Series Statement:
Economic Growth Center Discussion Paper
1044




 Record created 2017-04-01, last modified 2017-05-27

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