Assess whether Netflix subscribers behave rationally

Edexcel A-Level Economics Paper 1 June 2023 Extract

With reference to the information provided, assess whether Netflix subscribers behave rationally. (10 marks)

1. It is possible that Netflix customers act irrationally, which means that they don't always maximise their utility as traditional economic theory suggests.
2. In general, irrational behaviour can occur due to the tendency to follow habits or social norms, or the inability to compute things logically.
3. In the case of Netflix subscribers, many are likely to keep a subscription running permanently purely out of habit, rather than look at whether they will actually want to watch the new shows in the upcoming month.
4. The extract also mentions Netflix exploiting habitual behaviour through an auto-play feature.
5. Many customers also take up a free trial and then become likely to continue their subscription rather than weigh up whether the service is worth the price.
6. Additionally, many customers might find it difficult to understand the different options in terms of TV subscriptions and how easy it is to switch back and forth or cancel depending on their preferences.
7. For example, Disney has a higher satisfaction rate but many customers might not be interested in or aware of the switching process.

1. However, you could argue that Netflix customers are somewhat rational as the extract mentions that they are aware and worried about their 'rising cost of living'.
2. 200,000 Netflix customers have unsubscribed in the first quarter.
3. This suggests that they are refusing to stick to habits and they are considering all their options and trying to maximise their utility.
4. Customers in theory should cancel their subscription if the monthly price is higher than what they are willing and able to pay for the service.
5. If they paid more than that amount, they wouldn't have any consumer surplus from the transaction.

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