Intertemporal choice

Summary

Intertemporal choice is the study of the relative value people assign to two or more payoffs at different points in time. This relationship is usually simplified to today and some future date. Intertemporal choice was introduced by John Rae in 1834 in the "Sociological Theory of Capital". Later, Eugen von Böhm-Bawerk in 1889 and Irving Fisher in 1930 elaborated on the model. Fisher model Assumptions of the model

consumer's income is constant

maximization of the utility

anything above the line is out of explanation

investments are generators of savings

any property is indivisible and unchangeable

According to this model there are three types of consumption: past, present and future. When making decisions between present and future consumption, the consumer takes his/her previous consumption into account. This decision making is based on an indifference map with negative slope because if he consumes something today it means that he can't consume it in th

Official source

https://en.wikipedia.org/wiki/Intertemporal_choice

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Product Pricing in a Peer-to-Peer Economy

Thomas Alois Weber

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 paper 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 importantly, 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.

2016