An Empirical Analysis of Consumer Purchase Decisions Under Bucket-Based Price Discrimination

Yacheng Sun (), Shibo Li () and Baohong Sun ()
Additional contact information
Yacheng Sun: Leeds School of Business, University of Colorado at Boulder, Boulder, Colorado 80021
Shibo Li: Kelley School of Business, Indiana University, Bloomington, Indiana 47405
Baohong Sun: Cheung Kong Graduate School of Business, New York, New York 10019

Marketing Science, 2015, vol. 34, issue 5, 646-668

Abstract: Bucket-based price discrimination is a unique price format that involves monthly subscription fees and instantaneous quotas (the number of rental products that can be checked out). We propose an empirical model in which consumers make dynamic purchase decisions under consumption uncertainty, accounting for the constraints imposed by the instantaneous quota. Applying the model to an online DVD rental data set, we find that (1) consumers incur a large disutility (∼$8) from stockout (i.e., unmet consumption needs); (2) such a disutility drives consumers' overpurchase of the service quota as a way to avoid potential stockout situations; and (3) the dynamics of overpurchase are driven by the interplay between trends in consumption needs and the magnitude of consumers' plan-switching costs. We run counterfactual exercises to better understand how the instantaneous quota and stockout risk affect consumers' consumption rates, purchase decisions, and firm profitability. We find that the instantaneous quota induces a greater stockout compared with a monthly quota. We further demonstrate that the company should recognize the drivers of the dynamics in overpurchase to balance short- and long-term profitability—for example, by offering targeted discounts to customers with excess overpurchase.

Keywords: bucket-based price discrimination; subscription service; usage uncertainty; stockout; overpurchase; dynamic purchase decisions; optimal pricing; product design (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://dx.doi.org/10.1287/mksc.2015.0942 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:34:y:2015:i:5:p:646-668

Access Statistics for this article

More articles in Marketing Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().