Seminar (Dept. of Management Science and Engineering)

Title: Optimal Pricing of Trial and Long-term Digital Content Subscriptions: A Dynamic Structural Model

Speaker: Ding Li (Nanjing University Business School)

Time: 10:00 (Wednesday), May 22, 2024

Venue: Online Meeting

Language：Chinese/English

ABSTRACT:

In digital content subscription businesses, firms often provide consumers with freemium (i.e., free and premium) subscription plans that vary by short- and long-term durations (e.g., weekly, monthly, yearly). It is common for firms to 1) discount the per-period price of the long-term plan relative to that of the short-term plan and 2) provide discounted (or even free) trial subscriptions. However, what influences the optimal discounts for trial and long-term subscriptions and how to determine the optimal discounts have received little academic attention. In this paper, we propose a two-step analysis framework. Firstly, we develop a dynamic structural model that characterizes the key factors of the digital content subscription business model, including consumers’ commitment-opportunity cost tradeoff, learning of the premium content’s quality, intertemporal tradeoff, and consumer heterogeneity. We use this model to estimate the demand for investment content from an online financial advisor. We find that the consumers are generally risk averse, with their commitment outweighing opportunity cost. Consumers’ full learning of the quality of the premium content is rather efficient. However, the signals from their partial learning are upward-biased and significantly noisier. Secondly, with the estimated structural parameters, we conduct counterfactual experiments to identify the optimal discounts for trial and long-term subscriptions and uncover the relationship between key business model design parameters (e.g., the quality of the free content) and the optimal pricing strategies.