May not be combined with other offers

[Bob Steinke]

I sent this message once before, but it doesn't seem to have gone through. I apologize if you receive duplicates

I've run into a real life economic puzzle and I would like to get your ideas about it. I'm looking into giving my friend a gift subscription for some internet service, $20 for 30 days. I give my credit card to the web site, and my friend receives an email saying "go to our web site and enter this code to receive your subscription." This service also offers a free 10 day trial subscription to new customers which my friend would qualify for. Here's the trick, the web site forbids combining offers. If I give the gift subscription, my friend cannot also get his 10 free days. So what would be best for my friend would be for me just to hand him a $20 bill, and for him to sign up as a new member and get the 10 free days in addition to the 30 he gets with my $20. However, giving cash in our society is gauche. I would suffer embarasment if I did this. I suspect the web site is intentionally trying to use my embarassment as leverage against me. Here's a cost/benefit matrix:



The web site allows | The web site forbids
combining offers | combining offers
----------------------------------------------------------------------------
I give the gift | benefit to me: my friend | benefit to me: my friend
subscription | gets 40 days subscription | gets 30 days subscription
| cost to me: $20 | cost to me: $20
| benefit to web site: $20 | benefit to web site: $20
| cost to web site: 40 | cost to web site: 30
| days subscription | days subscription
----------------------------------------------------------------------------
I give cash | benefit to me: my friend | benefit to me: my friend
| gets 40 days subscription | gets 30 days subscription
| cost to me: $20 + | cost to me: $20 +
| embarassment | embarassment
| benefit to web site: $20 | benefit to web site: $20
| cost to web site: 40 | cost to web site: 30
| days subscription | days subscription
----------------------------------------------------------------------------

Both the top left and top right options are pareto optimal. The left is better for me, the right better for the web site, but both pareto optimal. Neither option on the bottom row is pareto optimal. Compare them to the top left option. The top left is better for me without being any worse for the web site. But the web site specifically forbids the top left option. They are hoping my embarassment is worth more than 10 days subscription and so I will choose the top right. But I'm still free to choose the lower right and the cost to the web site is the same. Is this a Nash equilibrium like the prisoners' dilemma? What does modern economics say about the prisoners' dilemma?

So the web site is a rational actor intentionally doing something that hurts me and doesn't help itself. This has implications for pareto optimality and maximizing global utility. The lower right option might be chosen depending on how I value my embarassment, but it can't be pareto optimal or have maximum global utility no matter how I value my embarassment because the upper left option is available if only the web site would allow it.

I think it also has implications for the fairness of market forces. People are weighed down with irrational things like embarassment while companies aren't. Is it fair for this company to use my embarassment against me like that?

I'm interested to hear your thoughts.