The Cost of Free: The Behavioral Economic Effects of 'Wait-for-Free' Pricing Schemes on the Monetization of Hedonic Digital Content

Abstract

Leveraging a combination of analytical frameworks and empirical assessments, this study investigates the effects of wait-for-free (WFF) pricing schemes on the monetization of serialized, pleasure-seeking digital content that has become increasingly pervasive in online platforms. WFF pricing is a strategy in which consumers are given the option to either wait for a certain amount of time to acquire indulgent digital content at no charge or pay to consume it immediately. We evaluate the extent to which habit formation and present-biased preferences driven by the consumption of addictive stock affect individual consumers’ willingness to wait and pay for content, which, in turn, determines the efficacy of WFF pricing. We also devote attention to consumer switching from awaiting free content to instantaneously consuming through purchase under the scheme of interest. The findings indicate that WFF pricing increases sales from serialized digital content, generating new demand from customers who would otherwise forgo participation in the market. In addition, the pricing design effectively secures sustained profits over long periods. We found that approximately 80% of consumers who initiate purchase either upon initial market entry or upon switching continue to purchase as new episodes become available. Moreover, we found that as a user consumes an accumulation of freely available episodes given extended waiting, the risk of conversion from delayed gratification to purchase increases. In particular, WFF pricing effectively augments the willingness-to-pay of low-valuation consumers as habit formation builds up through time with free consumption of serialized content. One free episode can elevate the likelihood of consumer purchase by up to 28%. However, as the number of free episodes consumed upon waiting goes beyond a threshold, the risk of conversion decreases. The analytical and empirical findings offer valuable insights into how consumers’ unique behavioral patterns (i.e., habit-formation and present bias) affect their willingness to pay for highly addictive digital goods. We conclude with a discussion of the pricing mechanism’s application in other contexts wherein consumers are willing to pay for immediate satisfaction rather than wait for complementary consumption.