Incentive Mechanism for Continuous Consumption under Habit Formation and Satiation Utility Model

Continuous purchase behavior of consumers is crucial for the success of subscription-based products and services. Despite progress in comprehending intertemporal consumption decisions, designing effective incentive mechanisms for customer retention remains challenging. This study extends the existent utility models under habit formation and satiation to enhance the desirability of an activity with a monetary reward. The optimal sequence of timing to provide an incentive is identified by numerical simulation under various configurations of parameters, and field experiment results suggest that it is effective to provide an incentive in the middle of the consumption.