Monopolies exploit consumer bias with nonlinear pricing, distorting consumption patterns.
Consumers often base their choices on average prices rather than individual prices when faced with complex pricing structures. A study found that when companies take advantage of this "average-price bias," they can design prices that lead to lower consumption for customers with the highest willingness to pay. This means that instead of offering discounts for buying more, companies may actually charge more for larger quantities. This strategy allows companies to maximize profits by replacing consumer information benefits with a different type of advantage. The success of this approach depends on the specific preferences and costs involved.