Contracts, Biases, and Consumption of Access Services

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We consider a consumption model that takes into account the valuation and demand uncertainties that consumers face while using access services. Typical examples of such services include telecommunication services, extended warranties for consumer electronics, and club memberships. We demonstrate that consumption is affected by contract structure (pay-peruse vs. three part tariffs) even if the optimal consumption plans are identical. We find that a majority of individuals correctly use a threshold policy that is similar to a nearly optimal heuristic, however they use the free units too quickly leading to overconsumption and lost surplus. These errors are partially driven by mistaken beliefs about the value distribution. We also measure subjects' willingness to pay for a contract with free access units, and we find that nearly half of subjects are willing to pay at least the full per-unit price, with a substantial fraction willing to overpay. The optimal firm strategy is therefore to offer a contract that presells access units at a very small discount; this strategy increases revenue by 8 − 15% compared to only offering a pay-per-use contract. Terms of use: Documents inJEL-Code: C910, D030, D120, L110.

Subscription Pricing for Free Delivery Services

“…Consumers’ usage rate increases when they subscribe, but congestion causes negative externalities (whereas, in our context, higher demand increases profits). Other subscription pricing models for access services study the effect of service capacity on the optimal pricing policy (Essgaier et al., 2002; Randhawa and Kumar, 2008), and provide empirical evidence of behavioral biases that affect consumer usage (Ascarza et al., 2012; Lambrecht et al., 2007; Leider and Sahin, 2014).…”

The emergence of streaming and its impact on pricing and product strategies of content providers

“…SaaS is a pricing strategy where the software is remotely hosted and access is granted to current subscribers, similar to how content is offered by streamers. Access pricing and SaaS have been studied in Essegaier et al (2002), Jain and Kannan (2002), Choudhary (2007), Fan et al (2009, Zhang and Seidmann (2010), and Leider and Sahin (2014).…”

An Experimental Analysis of Overconfidence in Tariff Choice

“…One stream of literature analyzes drivers of tariff choice (e.g., DellaVigna & Malmendier, 2006;Uhrich, Schumann, & Wangenheim, 2013). The other stream of literature studies consumer behavior given a chosen tariff (e.g., Iyengar, Jedidi, Essegaier, & Danaher, 2011;Leider & Şahin, 2014). Focusing on tariff choice, several studies showed that consumers do not always pick the tariff that minimizes their billing rate (e.g., DellaVigna & Malmendier,4 2006; Lambrecht & Skiera, 2006;Train, McFadden, & Ben-Akiva, 1987;Uhrich et al, 2013).…”