Quasi-Experimental Demand Estimation of Memberships and of Their Usage

Memberships are everywhere, and a growing number of superstar and small companies are turning their businesses into a membership-based model. However, the econometric challenges posed by endogenous pricing has caused research to lag behind, resulting in poor knowledge of membership pricing effect on consumers' purchase and usage. We fill this gap by focusing on an Italian museum membership card, an industry where memberships are rapidly gaining momentum. In particular, our Regression Discontinuity (RD) framework leverages several age-based price discontinuities to provide the first quasi-experimental estimates of membership cards' price elasticity. Depending on the specific age group, we find (absolute) price elasticities in the range 0.5-2.6, which are larger than the elasticities commonly found for single-ticket visits. Furthermore, we find that higher pricing is associated to a more intense and expensive use of the card; a closer look at the underlying mechanism suggests that a price-induced selection may be more important among the older cohorts, where the larger time availability arguably translates into more systematic price search efforts. Finally, we combine our previously-mentioned RD estimates to provide the first policy recommendation on membership cards' pricing.