Contribution to the Literature

3.2.1 Literature on the Influence of Price on Usage

Classic economic theory would suggest that prices should not have an influence on the post-purchase behavior of consumers because decisions should be affected only by benefits and incremental costs (e.g., Thaler 1980). Consequently, consumers’ usage of products should be independent of the price a consumer paid for the product. Nevertheless, a stream of literature on the post-purchase behavior of consumers exists.

We identify three important streams of research on the influence of price on usage. The first stream of price-usage literature is mainly focused on fast moving consumer goods and the impact of price promotions on accelerated usage and the reduction of stockpiled goods (e.g.,

46

Ailawadi and Neslin 1998). Here, lower prices induce a higher consumption rate, which is a key component of purchase acceleration.

This notion is also reflected in the second stream of price-usage literature: the research on tariff structures. Iyengar et al. (2011) find support for a different usage for different tariff structures. Higher usage occurs for pay-per-use pricing compared to two-part tariffs. Consistent with prospect theory and mental accounting, the authors argue that consumers derive lower utility in two-part tariff conditions because multiple prices are perceived as more negative compared to a single constant price (e.g., Kahneman and Tversky 1979). In addition, Ascarza et al. (2012) find that consumers adapt their usage behavior based on the tariff pricing scheme, and that consumers increase their usage when they switch from two-part tariffs to three-part tariffs. The reason is that the free component in a three-part tariff leads to an increase in valuation and a more positive affective response. Bolton and Lemon (1999) analyze the relationship between payment equity – the perceived fairness consumers derive from usage benefits compared to economic costs – and usage behavior. They find that if payment equity is achieved, overall satisfaction is positively affected, which leads to stronger future usage of a service. Finally, consumption rates differ depending on the payment plan a consumer chooses.

The highest usage occurs for monthly payments in contrast to e.g., quarterly or annual payments (e.g., Gourville and Soman 2002). A potential explanation is that, in contrast to yearly payments, where consumers experience one strong sunk cost effect at the beginning, monthly payments lead to recurring sunk cost effects which induce higher usage.

The third stream of price-usage literature is focused on the isolated effect of prices on usage. Arkes and Blumer (1985) analyze the direct effect by experimentally manipulating prices customers had to pay for a subscription to a theater series. They find that customers who had to pay the regular price attended more plays than those who were randomly assigned to a price promotion. The authors explain this behavior by sunk-cost effects or the sunk cost fallacy.

Generally, the term sunk cost fallacy describes the behavior of decision-makers who deviate from axioms of classic economic theory and incorporate past expenses – sunk costs – in their current decision processes. It is against classic economic theory because only present and future costs should affect one’s decision making (e.g., Thaler 1985). Sunk cost can have a utilization or progress character. A utilization character is the influence of sunk cost on the decision whether or not to consume a product. A progress character is the influence of sunk cost on the decision how much to further invest into a product (e.g., Moon 2001).

In a recent meta-analysis, Roth et al. (2015) find empirical evidence for sunk cost effects. However, the literature does not consistently agree on the effect of sunk-cost. Ashraf et

47

al. (2010) separates sunk-cost effects from screening effects. The latter arises if the mix of buyers changes as a result of price changes, i.e., if the price is higher, people who intend to use the product less would be also less likely to buy it a priori. Consequently, a higher price would be associated with higher usage even in the absence of any sunk-cost effects. Ashraf et al.

(2010) find strong evidence for screening effects but no evidence for sunk-cost effects.

However, Ashraf et al. (2010) do not trace actual total usage behavior but survey whether or not a product is used. Research by Nunes (2000) supports the notion of consumers being well aware of their expected usage when making a purchase decision. It is often a necessary decision of a consumer to invest time in a good before the consumer decides to purchases it (e.g., Luo et al. 2013). Therefore, customers anticipate their utility and adjust their willingness to pay before the purchase which leads to higher prices for consumers with a high expected usage (e.g., Hamilton et al. 2011; Tanner and Carlson 2009). Additionally, consumers can use the price as a commitment device. DellaVigna and Malmendier (2006) find that consumers of a health club are willing to pay for more expensive flat-fee memberships because they try to self-condition themselves towards attendance. Finally, Just and Wansink (2011) develop a theoretical model for the consumption under flat rate (or fixed) pricing. In the context of all-you-can-eat restaurants, they argue that consumers do not consume until a marginal utility of zero is reached but consume until they “get their money’s worth”.

Finally, we find literature on the effect of prices on customer perception. Typically, higher prices are associated with higher perceived product quality (e.g., Gerstner 1985; Rao and Monroe 1989). Discounted products are associated with inferior product quality and consumers derive a smaller benefit from consuming the product. This effect is explained with a placebo effect of price on perceived and actual quality (e.g., Shiv et al. 2005).

We are not aware of any study that is able to reach consensus about the distinction between the screening, selection and direct effect of price on usage due to a lack of information about the effect of price on purchase likelihood and actual behavior. We address this void in the literature by analyzing actual prices and actual usage behavior. As a result, this study contributes to the literature by assessing the influence of the price of a product on its subsequent usage above and beyond potential selection and screening effects.

3.2.2 Literature on Video Games

Video games have shifted from a niche to a blockbuster industry (e.g., Marchand and Hennig-Thurau 2013) and are the object of extensive research in a broad range of marketing topics (e.g., Cox 2014; Binken and Stremersch 2009). Further, several studies access the effect

48

of consumer characteristics on game usage. E.g., Holbrook et al. (1984) find that consumers increase positive emotions such as a game’s liking with rising mastery of the game.

Additionally, for hedonic experiences, consumers are more interested in practicing in order to increase their derived value within a given period in contrast to minimizing the utilitarian amount of time spent on a task (e.g., Murray and Bellman 2011). Further, studies by Lee and Larose (2007) analyze the effect of flow experience on usage. Flow experiences are enjoyable experiences that are products from deeply engaging in everyday activities. The authors find that the extent of a flow experience has no influence on the total usage of a game but only on the length of the single play session. Consequently, with respect to flow experiences, total video game usage is no automatism but consumers decide actively after each play session whether or not to continue playing the game. Finally, Hartmann et al. (2012) find evidence for the impact of habit and less of addictive tendencies on video game usage especially, when consumers showed a high intention to play the game in advance.

However, these studies do not analyze the influence of prices but game and consumer characteristics on usage. In this study, we link the literature on pricing research with the literature on video game usage and try to identify the direct effect of price on usage above and beyond potential selection and screening effects.