Can the payment plans for digital media platforms such as social media, videos, and web books be used to help users moderate their consumption? Xueming Luo examines the payment plans selected by consumers of a web book platform to learn more.
Luo finds that a third of consumers chose to pay by chapter instead of buying a monthly subscription, even when they were reading enough chapters that the monthly subscription would have been cheaper. Using a new dynamic structural model of consumer behavior, Luo finds that these customers are willing to assume the higher financial cost of the pay-per-chapter plan because it motivates them to read fewer chapters.
Luo suggests the platform include a nonlinear pricing plan where the cost increases for each new chapter purchased. His model predicts this plan would allow companies to increase their profits while consumers affordably limit their media consumption.