Abstract
This study experimentally investigates the impact of auto-renewal default options and cancellation frictions on consumer decision-making and welfare in subscription services. Leveraging insights from behavioral economics, we design an online experiment where participants interact with a simulated subscription service under varying conditions: opt-in vs. opt-out auto-renewal defaults and low vs. high cancellation effort. Our findings reveal that an opt-out auto-renewal default significantly increases subscription retention rates compared to an opt-in default, even when consumers initially express low intent to continue. Furthermore, high cancellation friction acts as a powerful deterrent, leading to substantially lower cancellation rates and effectively trapping consumers in unwanted subscriptions. We demonstrate that these design choices, often employed by firms, can lead to a significant reduction in consumer welfare by exploiting cognitive biases and inertia. The research provides empirical evidence for the existence of 'subscription traps' and offers critical implications for both marketing strategy and consumer protection policy aimed at fostering more transparent and equitable market practices.
