Exploring the trade-off between immediate gratification and delayed network externalities in the consumption of information goods

Our motivation for this paper originates from recent advances in consumption and payment technologies available for mobile commerce. Ubiquitous computing is enabling consumers worldwide to reach digital content and services whenever and wherever they request it. This capability further fuels “impatience” in consumption of such information goods. We model such consumer behavior using a hyperbolic discounting approach. A subset of these products, especially software, also inherit delayed network externalities as part of their consumption characteristics. This builds a tension between decision to consume now or to expedite consumption. We build a stylized model to assess the impact of immediate gratification on the profit maximizing behavior of a monopolist firm which produces an information good with network externalities. We find that serving “impatient” consumers is always profitable for a monopolist. For lower levels of network externalities, the monopolist can increase first period and decrease second period prices in equilibrium. As network externalities effect increases, prices converge to the traditional market (with exponential discounters) levels.