The Economics of Password Sharing

What the paper says

Password sharing is widespread across subscription-based industries, such as streaming services like Netflix. Although sharing reduces out-of-pocket costs for users, it also creates sharing-related burdens, such as privacy concerns and coordination hassles. We develop a game-theoretic model in which a firm serves two consumer segments—password sharers and nonsharers—to analyze how password sharing affects firm performance and consumer outcomes. Our results show that sharing enables groups of users to “self-bundle” by aggregating their valuations and subscribing through a single shared account. It also creates implicit price discrimination; sharers self-select between sharing and subscribing individually under a uniform price. These mechanisms can increase a firm’s revenue when sharing costs are low. In addition, password sharing reshapes the disparity between sharers and nonsharers. When nonsharers have sufficiently higher willingness to pay, the firm is even more likely to benefit from sharing. However, password sharing poses policy concerns. We find that it reduces social welfare and consumer surplus across a broad range of conditions—especially when sharing costs are moderate. Moreover, the firm’s profit-maximizing strategy, particularly when it chooses to accommodate sharing, often conflicts with what is best for consumers or society. These insights highlight the need for firms to carefully evaluate sharing policies and in some cases, for regulators to intervene to protect consumer welfare.