Abstract
The paper proposes a demand model of product usage in continuous time. Our setting is flexible enough to simultaneously explain usage frequency, duration of usage, and consumer response to product features and firm’s actions. Based on product usage literature, we define the main components of our model to include intrinsic motivations, product characteristics, external rewards provided by the firm, and past consumption. In our model, the influence of past consumer choices on decisions takes the form of a cue-based habit formation mechanism. The model is estimated on a novel dataset of online game usage where we observe the usage decisions of a large sample of individuals with a periodicity of 10 minutes. We provide managerial insights on product design and reward systems by testing different product configurations and measuring shirk with changes in reward frequency and product complexity. The proposed model can be applicable to a large number of product categories characterized by repeated product usage or content consumption.
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