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Online Content Pricing: Purchase and Rental Markets

Author

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  • Anita Rao

    (Booth School of Business, University of Chicago, Chicago, Illinois 60637)

Abstract
Digitization of content is changing how consumers and firms use purchase and rental markets. Low transaction costs make accessing content easier for consumers. Digital technology enables firms to create nondurable “rental” versions of their content and to restrict content to the purchasing consumer, effectively shutting down resale markets. To empirically analyze the interaction of purchase and rental markets, I design a preference measurement tool to recover consumers’ intertemporal preferences through current-period choices alone. I then use these preferences to solve for a dynamic equilibrium between consumers and the firm. In the context of the online home video market, I find that when the firm is able to commit to holding prices fixed forever, providing content through the purchase market alone is sufficient. However, when the firm is unable to commit, it should serve both purchase and rental markets. Canonical theory models would predict exclusive rentals, but the purchase option enables indirect price discrimination in practice. I also find that when consumers place a premium on accessing new content, they are less likely to intertemporally substitute, thereby increasing the firm’s pricing power. Consistent with theory, commitment to future prices increases profits considerably. This finding supports the rigid pricing structure of such retailers as Apple, despite studios’ push toward more pricing flexibility.

Suggested Citation

  • Anita Rao, 2015. "Online Content Pricing: Purchase and Rental Markets," Marketing Science, INFORMS, vol. 34(3), pages 430-451, May.
  • Handle: RePEc:inm:ormksc:v:34:y:2015:i:3:p:430-451
    DOI: 10.1287/mksc.2014.0896
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    4. Didier Laussel & Ngo V. Long & Joana Resende, 2020. "The curse of knowledge: having access to customer information can reduce monopoly profits," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 650-675, September.
    5. Rubing Li & Arun Sundararajan, 2024. "The Rise of Recommerce: Ownership and Sustainability with Overlapping Generations," Papers 2405.09023, arXiv.org.
    6. Yunhyoung Kim & Jeonghoon Mo, 2018. "Pricing of Digital Video Supply Chain: Free versus Paid Service on the Direct Distribution Channel," Sustainability, MDPI, vol. 11(1), pages 1-14, December.
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    8. Ohlwein, Martin, 2022. "Same but different - The effect of the unit of measure on the valuation of a unit price," Journal of Retailing and Consumer Services, Elsevier, vol. 66(C).
    9. Jian Pei, 2020. "A Survey on Data Pricing: from Economics to Data Science," Papers 2009.04462, arXiv.org, revised Nov 2020.
    10. Wenyi Wang & Qiang Guo, 2023. "Subscription strategy choices of network video platforms in the presence of social influence," Electronic Commerce Research, Springer, vol. 23(1), pages 577-604, March.
    11. Ashutosh Prasad & R. Venkatesh & Vijay Mahajan, 2017. "Temporal product bundling with myopic and strategic consumers: Manifestations and relative effectiveness," Quantitative Marketing and Economics (QME), Springer, vol. 15(4), pages 341-368, December.
    12. Lee, Sanghak & Kim, Hyowon & Kim, Jaehwan & Allenby, Greg M., 2018. "A choice model for mixed decision variables," Journal of choice modelling, Elsevier, vol. 28(C), pages 82-96.
    13. Monire Jalili & Michael S. Pangburn, 2020. "Pricing Joint Sales and Rentals: When are Purchase Conversion Discounts Optimal?," Production and Operations Management, Production and Operations Management Society, vol. 29(12), pages 2679-2695, December.
    14. Jackie Y. Luan & K. Sudhir, 2022. "Optimal Inter-release Timing for Sequentially Released Products," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 9(1), pages 25-46, June.

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