UCL School of Management is delighted to welcome Dr. Cheng Chou, Leicester University, to host a research seminar discussing ‘Can Willingness to Pay be Identified without Price Variation?’

Abstract

We study how to obtain consumers willingness to pay (WTP) for subscription products, where consumers pay a monthly fixed price. We show that variation in usage and subscription choice together can identify the elasticities and the WTP distribution. We propose a novel estimation strategy to recover the willingness to pay distribution in the absence of price variation. In addition, we show how price variation can help identify the functional form in which the usage affects the WTP. We demonstrate an application of our method with both usage and monthly subscription data from a music streaming service. We recover the conditional distribution of WTP based on demographic variables, and find positive age elasticity of the WTP, and that male subscribers are willing to pay more for the service. We estimate the demand curve for the monthly plan and the distribution of WTP for a counterfactual subscription plan, and we determine how to optimally set prices for the new plan.