The Effect of Cost Structure on Consumer Purchase and Payment Intentions
Coauthor(s): Joseph Nunes, Christopher Hsee.
Intellectual property piracy is a significant global problem and an enormous problem for U.S. companies and policymakers. This article examines why typically law-abiding people are more inclined to steal intellectual property products than more tangible, material products. The authors propose that the inclination to pay for certain types of goods and services is greater than for other types, and what distinguishes the two classes is their cost structure. They document how consumers are more or less inclined to pay for goods and services as a function of whether the product's cost is principally attributable to variable cost (VC) or fixed cost (FC). The authors' central thesis is that consumers (1) believe that they cause less harm if their failure to pay prevents a seller from recovering FC than if their failure to pay helps a seller recoup VC; (2) are more likely to risk not paying for a product the less harm they perceive that not paying would cause; and (3) therefore feel less obligated and are less likely to pay voluntarily for a high-FC, low-VC product than for a high-VC, low-FC product, when total cost and average cost are held constant. This research is particularly relevant in the information age, because it helps explain why consumers appear to be more inclined to risk stealing software and other intellectual property products with relatively high FC and little or no VC. It also allows for the creation of marketing remedies that do not involve further legal enforcement.
Source: Journal of Public Policy and Marketing
Nunes, Joseph, Christopher Hsee, and Elke Weber. "The Effect of Cost Structure on Consumer Purchase and Payment Intentions." Journal of Public Policy and Marketing 23, no. 1 (Spring 2004): 43-53.