ABSTRACT
In the previous chapter we analysed a number of cases in which sunk costs affected purchase and usage decisions regarding products. In this chapter we look at the topic of payment, analysing and focusing on the importance of the timing stages between these three phases in a transaction. The flat-rate model used in telecoms, where normally the use of the service for a month is followed by the payment of the fixed monthly tariff, represents a form of post-paid contract in which the purchasing decision precedes the usage decision and the payment decision. By contrast, the enrolment at the tennis club corresponds to a form of pre-paid contract, in the sense that acquisition and payment of the one-off subscription fee take place at the beginning of the year, to be followed by the use of the service over the following 12 months. Economic theory sustains that this time lapse between the moments of buying, using and paying for something play a role because of ‘the time value of money’. The behavioural approach adds some interesting ideas to this, in some cases providing for the inverse effect to what classical economic theory would assume. Let us examine this in more detail.
