Liran Einav, Stanford University

"Selling Subscriptions"

Abstract

Retailers are increasingly selling goods and services via subscriptions instead of spot markets. In this paper, we study one benefit to the retailer of selling subscriptions: the possibility that – presumably because of inattention or inertia – consumers continue to pay for subscriptions after the flow benefit falls below its price.
We use comprehensive data from a large payment card network and focus on credit and debit cards that get replaced (e.g., due to expiration). Replaced cards require an active subscription renewal decision, and we document that months during which cards are replaced are associated with much higher rates of cancellation for the ten subscriptions we study.
We write down and estimate a stylized model of subscription renewals that allows us to recover the baseline degree of inattention. We find that estimated inattention is higher for consumers that took cash advances, a proxy for low financial sophistication.
Relative to a counterfactual in which consumers are fully attentive, inattention raises seller revenues by between 14% and more than 200%. We use the estimated model to explore the quantitative impact of possible regulatory remedies.

Liran Einav is a professor of economics at Stanford University and a research associate in the National Bureau of Economic Research, where he is directing the Industrial Organization Program.

Einav’s areas of specialization are industrial organization and applied microeconomics. An important strand of his work is focused on insurance markets, including the development of empirical models of insurance demand and pricing, and empirical analyses of the implications of adverse selection and moral hazard.

Much of Einav's current work is focused on health-care markets. In the past he also studied consumer behavior and the pricing of subprime auto loans, competition in the motion picture industry, strategic commitment, and peer-to-peer internet markets.

Einav recently served as a co-editor at the American Economic Review, after serving as a co-editor at Econometrica and AEJ Applied. He received his undergraduate degree in computer science and economics from Tel Aviv University (Israel) in 1997, and his PhD in economics from Harvard University in 2002.

You can read more about Liran Einav here

CEBI contact: Mette Gørtz & N. Meltem Daysal