Fee or Free: When Should Firms Charge for Online Content?

36 Pages Posted: 10 Aug 2013 Last revised: 8 Oct 2015

See all articles by Anja Lambrecht

Anja Lambrecht

London Business School

Kanishka Misra

University of Michigan, Stephen M. Ross School of Business; University of Michigan at Ann Arbor

Date Written: October 7, 2015

Abstract

Many online content providers aim to compensate for a loss in advertising revenues by charging consumers for access to content. However, such a choice is not straightforward because subscription fees typically deter customers and a resulting decline in viewership further reduces advertising revenues. This research examines whether firms that offer both free and paid content can benefit from adjusting the amount of content offered for free. We find that firms should offer more free - and not paid - content in periods of high demand. We motivate theoretically that this policy which we term 'counter-cyclical offering' may be optimal for firms when consumers are heterogeneous in their valuation of online content, this heterogeneity varies over time, and more so for low consumer types than for high types. Using unique data from an online content provider, we then provide empirical evidence that firms indeed engage in counter-cyclical offering and increase the share of free content in periods of high demand.

Keywords: Pricing, Online Media, Counter-Cyclical, Internet, Electronic Commerce, Paid Content, Paywall

Suggested Citation

Lambrecht, Anja and Misra, Kanishka, Fee or Free: When Should Firms Charge for Online Content? (October 7, 2015). Available at SSRN: https://ssrn.com/abstract=2307961 or http://dx.doi.org/10.2139/ssrn.2307961

Anja Lambrecht (Contact Author)

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom

Kanishka Misra

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

University of Michigan at Ann Arbor ( email )

500 S. State Street

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
726
Abstract Views
3,121
Rank
65,132
PlumX Metrics