Workshop’s Topic: Many addictive products, e.g., video games, exhibit a "withdrawal" feature that triggers negative experiences if consumers cease consumption. The firm has incentives to increase the degree of severity to keep consumers "hooked", and meanwhile, it has to address consumers’ concerns about over-consumption problems when hooked. We model a firm’s product design decision regarding managing the severity of withdrawal if consumers refrain from consuming. We find the optimal price and profits first increase and then decrease with the withdrawal. The optimal withdrawal decreases with the severity of the self-control problem and increases with the harmfulness due to over-consumption. Interestingly, consumer-welfare-maximizing withdrawal level can be higher than the level that maximizes firm profits. We further investigate the implications of public policies such as "sin" tax and consumption curfew on regulating addictive product consumption. We extend the analysis as follows: first, we study the product design problems related to the product’s harmfulness and features that allow consumers to self-regulate. We find that the firm has incentives to reduce the harmfulness but not to offer the self-regulation feature. Second, we examine alternative pricing contracts, namely, fixed-fee and freemium contracts, The fixed-fee contract can be seen as the firm’s commitment to no withdrawal feature, whereas the freemium contract indicates high withdrawal. When the harmfulness is low and the consumers’ self-control problem is severe, the freemium contract generates the highest profits. Last, in the presence of competition, the increase in one firm’s withdrawal can increase the competitor’s profits.

Time and Location: 15:00 PM (GMT+8), Room A523 (School of Management)

Language: Bilingual (Chinese and English)