Essays on Time Inconsistency and Industrial Organization

This thesis consists of two chapters. In the first chapter, we provide an explanation for the common observation in the market for upgrades, which is that firms tend to offer small upgrades very frequently instead of significant ones less frequently. We explain this problem using the time-inconsistent behavior of consumers. We examine cases in the presence of naive hyperbolic preferences and sophisticated hyperbolic preferences separately. We show that it is optimal for the monopolist to offer the upgrades more frequently to more hyperbolic consumers under certain circumstances.In the second chapter, we show that naive hyperbolic consumers might be unresponsive to interest rates and credit limits of credit card offers by companies because the offers have a grace period. Consequently, we demonstrate that there might be no competition on the interest rate and credit limit, even if more than onefirm is in the market and even if the consumer accepts only one card. We determine whether the credit card companies can exploit time-inconsistent consumers and gain positive expected profits. We show that in fact there are circumstances in which both zero and positive expected profits could be possible.