Pricing and consumption of digital content

Seminar paper from the year 2016 in the subject Communications - Multimedia, Internet, New Technologies, grade: 1,0, University of Frankfurt (Main) (Marketing), course: Pricing-, Customer-, And Online Decision Making, language: English, abstract: A lot of publishers start to charge for digital content and refrain from offering digital content for free. This resulted from declining advertising rates for online space and decreasing subscription rates to print content. However, a lot of publishers fear that price increases lead to a decrease in demand and revenue. In this paper, I address the question of how to successfully implement prices for digital content. Nevertheless, little is known about how the users react to price changes and if price increases effectively decrease the demand for digital content. Besides, applying behavioral theories, such as the mental accounting theory, on digital content is a rather new and unexplored topic. Therefore, this paper gives not only an overview of the existing literature on the pricing of digital content but also the findings of the mental accounting theory and its possible implications for digital content. I want to show that the payment frequency, the screening effect and the sunk-cost effect influence the bundling and the micropayment model differently and that higher prices attract users with a higher willingness-to-pay, who increase consumption and could offset the loss in demand from users with a free-lunch-mentality. However, there are contradictory findings of the effects of price on consumption. For instance, the prospect theory from Kahneman and Tversky states that users are loss-averse and want to avoid payments as often as possible, which implies to decrease the payment frequency.