Click Once, Pay Forever? The Economics Behind the Sticky Web of Accidental Subscriptions

 Do you often find yourself signing up for free trials on websites only to forget to cancel them later? You're not alone. Recent reports from Citizens Advice highlight a concerning trend - the cost of unintentional subscriptions in the UK has alarmingly doubled within a year, reaching a staggering £688 million (The Guardian, 2024). This surge underscores a growing issue where the allure of initial ease leads to unforeseen entrapments in hard-to cancel contracts.

But what underlies this widespread dilemma, and how does economic theory shed light on the intricate mechanisms driving it?

The Economics Behind 'Subscription Traps'

At the heart of the issue lies the concept of information asymmetry, a situation where one party in a transaction has greater information than the other. In the case of subscription services, companies often possess and exploit this information advantage, making it difficult for consumers to understand or navigate the cancellation process. This exploitation of information asymmetry can lead to what economists refer to as market failure, where the allocation of goods and services by the market is not efficient. Imagine signing up for a streaming service, enticed by the allure of a month-long free trial. You mentally mark the cancellation deadline, yet, when the time comes, the process is anything but straightforward. Hidden among layers of menus and options, the ‘cancel’ button seems intentionally obscured. Thus, many have fallen victim to information asymmetry, with 26% of UK adults having accidentally entered subscription contracts within the past 12 months (Clark, 2024). However, in this scenario, companies may lack the incentive to make the cancellation procedure transparent or straightforward because they stand to gain financially from consumers' forgetfulness or laziness. This phenomenon is called "moral hazard," and companies profit from traps that ensnare naive consumers.

Human Factors in Subscription Overload

Behavioral economics is a branch of economics that adopts an empirical approach and is influenced by psychology and cognitive science. It investigates the social, cognitive, and emotional factors behind individual and group economic decisions to understand how market economies work and how public choices are made, which will help us better understand the changes in human behavior that when unexpected subscriptions occur. Segueing from the foundational principles of behavioral economics, we came across a surprising discovery when studying the problem of accidental subscriptions. It appears that we, the consumers, don't always follow the straight path laid out by traditional economic theory. Our preferences can be a bit foggy and are prone to shift with the winds of circumstance, which means our choices might not always lead us down the path of greatest benefit. Plus, when the decision-making gets tough — think of the fine print and countless options in subscription terms — we tend to fall back on our trusty mental shortcuts. As convenient as these shortcuts or heuristics are, they come with a catch; they can skew our decisions in ways we might not expect, nudging us away from the best economic choices. Each of us has a distinct set of preferences guiding our choices, but when it comes to subscriptions, we might be reeled in by the convenience of a service that appears to cater to our immediate interests. For instance, a fitness app subscription seems perfect in January when we are all determined to reach our New Year's fitness goals. Yet, these preferences may not always align with our long-term usage patterns, leading us to pay for services that we barely use. In addition, when we click "subscribe," a great deal of bias influences our decision. For example, the bias of excessive optimism convinces us that we'll definitely make the most of this subscription — we envision a future where we are fitter, more informed, or better connected, underestimating the possibility, and likelihood, that our enthusiasm might deteriorate. However, when the trial period's end nears, delayed gratification kicks in — or rather, the struggle with it. The instant gratification of access now feels essential, and the idea of canceling feels less and less appealing. We keep the subscription, telling ourselves we'll use it more in the future.

The 'Market for Lemons'- The Good Vs the Bad

The 'Market for Lemons', coined by economist George Akerlof, illustrates the conundrum where products of lower quality ('lemons') push out the higher quality ones due to information asymmetry — when sellers know more about the product quality than buyers do.

In the subscription service market, much like how buyers struggle to distinguish between high and low-quality cars in the marketplace, consumers often find it challenging to judge the true value of a subscription service in advance. This can lead to a prevalence of difficult to- cancel subscriptions—services that have entangled consumers before they realize it and may be harder to get rid of than more valuable, transparent, and honest offerings in the market. If consumers have bad past experiences with subscription services, they may be less willing to engage in trials or sign up to new subscriptions for fear of becoming trapped in hard-to-exit agreements. This cycle can diminish the motivation for providers of high quality services to enter the market, as they might feel it's hard to prove their worth in a market with low-quality expectations. Consequently, as described by Akerlof, the supply of high-quality services might decrease, while companies that exploit consumers can survive in the market.

How Can We Prevent These Traps?

Solutions to the problem of accidental subscriptions can emerge from both institutional changes and personal strategies. Regulatory bodies can step in to mandate clearer terms of service and easier cancellation processes, thus removing information asymmetry. As of 2022, the UK government hold businesses accountable for these subscription traps, making them provide clearer information to consumers before entering contracts, as well as issuing reminders when free trials are ending (UKICC, 2022). On the individual level, tools such as subscription tracking apps and calendar reminders can help counteract the biases identified by behavioral economics, empowering consumers to take control of their subscription choices and financial health.

References

Clark, J. (2024). Consumer harm from subscription traps ‘worsening amid fix failure’. [online] The Independent. Available at: https://www.independent.co.uk/business/consumer-harmfrom- subscription traps-worsening-amid-fix-failure-b2509087.html [Accessed 17 Apr. 2024].

Hamann, F. (2019). Subscription Traps: 4 Ways to Get Caught and How to Get Out. [online] Subaio. Available at: https://subaio.com/subscription-economy/4-ways-to-get-caught-in-asubscription- trap [Accessed 18 Apr. 2024].

Marsh, S. and correspondent, S.M.C. affairs (2024). Spending on accidental subscriptions has doubled in a year in UK. The Guardian. [online] 8 Mar. Available at: https://www.theguardian.com/money/2024/mar/08/spending-accidental-subscriptionsdoubled-in-year-uk-citizens-advice.

UKICC (2022). Subscription trap complaints rise by 77% | UKICC - The UK International Consumer Centre. [online] www.ukecc.net. Available at: https://www.ukecc.net/newspublications/subscription-trap-complaints-rise-77 [Accessed 17 Apr. 2024].