How consumers pay more money to curb overconsumption?

Recently, the research team involved in by Dr. WANG Xiaoyi from the School of Management at Zhejiang University published a study entitled “Time-Inconsistent Preferences and Strategic Self-Control in Digital Content Consumption” in Marketing Science.

Nowadays, consumers widely embrace digital content, such as social media, videos, music, and books. However, when consumers indulge themselves inside the fantasy world, they can lose self-control and spend more time and money than they originally intended. As Professor WANG Xiaoyi, one of the principal contributors to the research, mentioned in an interview, “in consumers’ brains, reward takes precedence over pain. During offline consumption, consumers have to make an effort before they can enjoy, which naturally becomes a self-control mechanism, whereas in digital content consumption such mechanism doesn’t exist,”

To examine consumers’ digital content consumption behaviors and their self-control strategies, WANG’s team focuses on a specific type of digital content—web fiction, which is prevalent among Asian consumers. In 2008, the market size was estimated at around 18 billion yuan.

As a matter of fact, readers on most digital book platforms can choose either to pay for each chapter or for a monthly subscription. However, according to the unique data set obtained from a major platform in China, whereas only 6% of consumers overpay by choosing the monthly subscription, around a third of consumers consistently overpay every month by choosing to pay per chapter. For those who overpay, 60% switch plans later if they are on the monthly subscription, whereas only 20% switch if on the pay-per-chapter plan.

The research team argues that these overpaying behaviors are consistent with the idea that consumers use strategic self-control measures to curb overconsumption.

To rationalize the overpaying behavior observed in the data, the team introduces a “time-inconsistent” preference that has been widely studied in the behavioral literature. The team assumes that consumers are fully rational and forward looking at the beginning of each month when they choose the pricing plan; however, as they become emotionally involved in reading during the consumption stage, they may ignore potential nonmonetary costs, such as the physical and mental health consequences of overreading. Consequently, consumers will read more than the optimal level that they would have chosen if the costs were considered. To bring themselves closer to the optimal level, consumers will strategically choose the pay-per-chapter option to impose a higher monetary cost for every chapter they read during the consumption stage as a strategic self-control measure.

Based on the above analysis, the team uses counterfactuals to study the impact of pricing plans on consumer welfare and the platform’s profit. They find that if the platform were to eliminate the pay-per-chapter option, which helps consumers to curb consumption, not only would it hurt consumer welfare but its profit too, which would drop by 76%. If the platform were to eliminate the monthly subscription option that encourages more consumption, its profit would increase by 46%, whereas consumer welfare would decrease by only 4.5%. Finally, the team studies a nonlinear pricing plan with a volume surcharge, analogous to an antiaddiction law in China that is aimed at restricting minors from overplaying video games. The plan charges consumers a lower price for each chapter at the beginning and then increases the price after they read more than a certain amount. The study shows that this plan together with existing plans would simultaneously improve the platform’s profit by 46% and consumer welfare by 2.5%.

The study contributes both theoretically and empirically to the literature on consumer time-inconsistent preferences and strategic self-control behaviors. Findings from this structural model will help shed light on firms’ pricing strategies in the digital content market. Given the similarity of web fiction to other digital content, and even vice goods including cigarettes, alcohol, and drugs, the modeling approach and findings can also generalize to other consumption contexts where consumers may use strategies to control their overconsumption behaviors.

This is a translation of the article by DUAN Ting published on Mar. 15 on ZJU-SOM WeChat Official Account.

Editor: DUAN Ting, ZHU Yudi

Picture Source:Qianku