Consumers' Misunderstanding of Prices Benefits Monopolists, Hurts Aggregate Consumption.
Consumers often don't understand nonlinear pricing well and make choices based on average prices rather than marginal prices. This can lead to suboptimal decisions. Even if consumers misunderstand prices, it doesn't necessarily affect the overall welfare or efficiency of quadratic pricing schemes. However, it can benefit the monopolist. Interestingly, more misunderstanding of prices can benefit both consumers and the monopolist if the level of misunderstanding is low. Misunderstanding prices can also hinder efforts to reduce overall consumption using certain pricing strategies.