The Economics of Password Sharing

Password sharing has been commonly observed across various subscription-based industries, including the notable streaming service from Netflix. Although sharing helps save on payments, it incurs a sharing cost for consumers, including possible privacy concerns. We develop a game-theoretic model in which a firm faces two consumer segments—password sharers and nonsharers—to examine the effect of password sharing. We find that password sharing allows sharers to self-bundle and subscribe based on their aggregated valuation, reducing the heterogeneity in their valuations. Furthermore, it introduces implicit price discrimination by allowing sharers to self-select between sharing and not sharing under a single uniform price. These two effects can benefit the firm, but only when the sharing cost, a burden to consumers and thus to the firm, is low. Meanwhile, password sharing reshapes the segment disparity between sharers and nonsharers. A greater nonsharer valuation premium reduces the disparity and makes the firm more likely to benefit from password sharing. Together, compared with the scenario in which consumers cannot share passwords, password sharing benefits the firm when the sharing cost is low and the valuation premium of nonsharers is not too small. Surprisingly, password sharing reduces social welfare and consumer surplus in a large space, especially when the sharing cost is neither too low nor too high. Under the firm’s optimal password-sharing choice, although a win-win outcome arises under certain conditions, the firm’s choice (especially of password-sharing accommodation) might hurt social welfare and consumer surplus, demanding social planners’ intervention.

History: Hsing Kenneth Cheng, Senior Editor.

Funding: J. Sheng acknowledges the financial support from the National Science Foundation of China [NSFC Grants 72531009 and 72471219].

Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2024.1313.