Regulating Inertia in a Subscription Economy

Eserhan Eser (University of Chicago)

Abstract

In subscription-based services, the buyers remain in the subscription until they switch or cancel. Over time, the alternatives may become more attractive to the customers compared to the current subscription, or the benefit that customers get from the subscription may decrease. When this happens, a reasonable customer will switch to the alternative or unsubscribe. However, some customers fail to do so. This failure is defined as customer’s inertia. Using data from customers' statements, this study identifies inert customer behavior among monthly wireless phone line subscriptions. To address inertia, states have responded with automatic renewal laws that most of which cover only yearly contracts. Therefore, the current regulations don’t address the inertia problem in monthly subscriptions. Drawing on the marketing literature, this study proposes expanding state regulations to all subscriptions with a reminder mechanism.

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