Digital Goods Consumption: Consumer Self-Control and Firm Pricing Strategies

In this dissertation, we develop game-theoretic models of how digital platforms design pricing strategies when consumers are time-inconsistent. We study two canonical frictions that dominate digital consumption: (i) overconsumption of vice goods such as streaming services and video games, where immediate gratification comes immediately and pain arrives later; and (ii) procrastination for investment goods such as e-learning and wellness applications, where immediate effort costs comes immediately but rewards arrive later. Across both settings, the firm’s problem is not merely to set a single price, but to craft a multi-tier pricing strategies of differentiated contracts that screens heterogeneous consumers (naïve or sophisticated) and interacts with their presented-biased preferences.Study 1 analyzes digital vice goods under vertical differentiation. A monopolist offers multi-tier pricing strategies (i.e., subscription versus pay-per-use pricing plan). The model shows that the pay-per-use option is optimally positioned as a commitment device valued by sophisticated, pre-planning consumers who wish to curb future impulsive use, while the subscription option is priced to extract surplus from consumers who do not pre-plan and overuse. The analysis characterizes the conditions under which profitability rises with product harm in the presence of consumer commitment device, when market segmentation via subscriptions expands demand, and when encouraging pre-planning might, undesirably reduce consumer surplus and public-health welfare, particularly when only a small share of consumers adopt goals and the product is moderately harmful.Study 2 examines digital investment goods through subscription design. The firm chooses a menu comprising a flexible, auto-renewing monthly plan and a discounted, fixed-term annual plan. Consumers are present-biased yet naïve about their self-control and experience sunk-cost disutility if they pay but do not use. Interestingly, we find that the annual plan functions as a nudge to consumers by leveraging upfront payment and perception of self-control capability, whereas the monthly plan creates temporal scarcity and recurring deadlines that can raise effort. We characterize plan-selection thresholds and profit-maximizing prices, showing when naïve consumers prefer monthly contracts despite lower nominal cost of annual plans, and when firms optimally mix plans to monetize naïve overoptimism and cancellation inertia. Further, educating consumers to improve self-control capability might hurt consumer surplus and social welfare with consumers having naïve expectations.Taken together, these studies offer a unified framework in which pricing menus both manage and monetize behavioral bias. The models deliver testable predictions for plan uptake, usage, profits, and welfare, and translate into actionable guidance: for policymakers, on when to advocate planning-promotion program and how to regulate market so that improve welfare; for consumers, on selecting pricing plan that match their self-control (e.g., using limited-access or monthly plans as commitment, avoiding exploitative subscription plan, and setting explicit usage goals); and for firms, on designing multi-tier pricing schemes, deadlines, and price adjusting that profitably segment consumers while aligning with long-run outcome.