A Model of Forward-Looking Behavior and Pricing in the Emerging Webtoon Market

Abstract

As the internet market environment matures, online markets providing various types of contents have flourished. The webtoon market is one such rapidly growing sector. Based mainly in Asia, the webtoon market emerged as comics originally produced in the form of print publications were transferred to digital format. In this study, I analyze purchasing patterns in the webtoon market taking into account the forward-looking behavior of consumers. A forward-looking consumer compares the utility of present and future purchasing decisions by considering their own discount rates on future purchase utility as well as expectations on future price reductions. This comparison strongly influences when consumers will purchase the goods in question.

In the webtoon market, serial episodes are provided weekly and consumers can choose to read the next episode for free when it is released, or read it in advance by paying a fee. This study suggests a theoretical decision model that takes into account the forward-looking behavior of consumers, the serial nature of webtoons, and the uniqueness of the early access model. The study utilizes the assumption that each consumer is heterogeneous in terms of expected utility for the next episode, and discount rates of future purchase utility.

The current study provides a theoretical explanation of the seemingly unreasonable behavior of customers who continue to purchase the latest preview, even though this behavior results in lower net utility compared to when they wait continuously for the next free episode. Based on this understanding, an optimal price for early access is derived mathematically with the assumption that the distribution of heterogeneous consumers follows a uniform distribution. If the distribution of consumer heterogeneity is known, an actual optimal price could be determined through this model. A key mathematical finding of this model is that that an intertemporal price discrimination strategy, at any degree of price discrimination from an arbitrary single price, outperforms a uniform pricing strategy in terms of revenue.

The significance of this study is as follows. First, it provides a logical explanation of consumer behavior in the webtoon market, which could also be utilized to aid the understanding of other serial online content markets. Second, it provides a theoretical, mathematical basis for pricing decisions in the webtoon and other similar markets. Further empirical studies are needed to fully validate the finding of this paper.

Keyword : Online contents market

Webtoon

Pricing

Forward-looking consumers

intertemporal price discrimination

Student Number : 2016-20638