How Should Firms Manage Excessive Product Use? A Continuous-Time Demand Model to Test Reward Schedules, Notifications, and Time Limits
54 Pages Posted: 10 Nov 2018
Date Written: October 17, 2018
Several industries related to screen usage have recently been criticized by parents, think tanks, and governments for creating product environments that lead to excessive consumption. If firms do not properly manage product usage, demand may drop and public policy makers may intervene. We test alternative ways to manage the use of such products: re-designing the timing of rewards, introducing notifications to users, and imposing time limits. We propose a continuous-time demand model to be empirically estimated with high frequency data. The methodology is flexible enough to simultaneously explain multiple usage decisions that happen in quick succession, such as when to start and stop usage and how to respond to rewards or messages from the firm. The approach is implemented on a dataset from the online gaming industry, where we observe usage decisions of a large sample of individuals. We find that improving reward schedules and imposing time limits leads to shorter usage sessions and longer product subscriptions; a win-win outcome. Notifications are found not to be useful to manage product usage.
Keywords: Product Usage, Dynamic Choice Models, Continuous Time, Excessive Product Use, Online Gaming
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