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Abstract

The paper analyses the payment behaviour of customers of the online music label Magnatune. Customers may pay what they want for albums, as long as the payment is within a given price range ($5-$18). Magnatune's comprehensive pre-purchase access facilitates music discovery and allows an informed buying decision setting it apart from conventional online music stores. On average customers pay $8.20, far more than the minimum of $5 and even higher than the recommended price of $8. We analyse the relationship between artists/labels and customers in online music. We consider social preferences, in particular concerns for reciprocity. The resulting sequential reciprocity equilibrium corresponds to the observed pattern of behaviour. We conclude that Magnatune's open contracts design can encourage people to make voluntary payments and may be a viable business option.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 71 (2009)
Issue (Month): 2 (August)
Pages: 395-406

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Handle: RePEc:eee:jeborg:v:71:y:2009:i:2:p:395-406

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Social preferences Reciprocity Music industry Experience goods Psychological game theory Emotions;

Other versions of this item:

Find related papers by JEL classification:

• C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models
• C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
• C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
• D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
• L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

References

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1. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper 1998-37, Tilburg University, Center for Economic Research.
   
   • Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May.
   • Georg Kirchsteiger & Martin Dufwenberg, 2004. "A theory of sequential reciprocity," ULB Institutional Repository 2013/5899, ULB -- Universite Libre de Bruxelles.
   • Margin Dufwenberg & Georg Kirchsteiger, 2001. "A Theory of Sequential Reciprocity," Levine's Working Paper Archive 563824000000000090, David K. Levine.
2. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
   
   • Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
3. John A. List & David Lucking-Reiley, 2000. "The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign," Vanderbilt University Department of Economics Working Papers 0008, Vanderbilt University Department of Economics.
   
   • John A. List & David Lucking-Reiley, 2002. "The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 215-233, February.
   • John List & David Lucking-Reiley, 2002. "The effects of seed money and refunds on charitable giving: Experimental evidence from a university capital campaign," Natural Field Experiments 00301, The Field Experiments Website.
4. Cragg, John G, 1971. "Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods," Econometrica, Econometric Society, vol. 39(5), pages 829-44, September.
5. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
6. Ruffle, Bradley J., 1999. "Gift giving with emotions," Journal of Economic Behavior & Organization, Elsevier, vol. 39(4), pages 399-420, July.
7. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March.
8. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-77, June.
9. Dufwenberg, Martin, 2002. "Marital investments, time consistency and emotions," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 57-69, May.
10. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.

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Citations

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Cited by:

1. Thomes, Tim Paul, 2011. "An economic analysis of online streaming. How the music industry can generate revenues from cloud computing," ZEW Discussion Papers 11-039, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
2. Regner, Tobias & Riener, Gerhard, 2012. "Voluntary payments, privacy and social pressure on the internet: A natural field experiment," DICE Discussion Papers 82, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
3. Maroš Servátka, 2007. "Does Generosity Generate Generosity? An Experimental Study of Reputation Effects in a Dictator Game," Working Papers in Economics 07/03, University of Canterbury, Department of Economics and Finance.
   
   • Servátka, Maros, 2010. "Does generosity generate generosity? An experimental study of reputation effects in a dictator game," The Journal of Socio-Economics, Elsevier, vol. 39(1), pages 11-17, January.
4. Schmidt, Klaus M. & Spann, Martin & Zeithammer, Robert, 2012. "Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets," Discussion Papers in Economics 14308, University of Munich, Department of Economics.
   
   • Schmidt, Klaus M. & Spann, Martin & Zeithammer, Robert, 2012. "Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 393, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
5. Thomes, Tim Paul, 2011. "An economic analysis of online streaming: How the music industry can generate revenues from cloud computing," ZEW Discussion Papers 11-039 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
6. Matthias Greiff & Henrik Egbert & Kreshnik Xhangolli, 2013. "Pay What You Want – But Pay Enough! Information Asymmetries and PWYW-Pricing," MAGKS Papers on Economics 201304, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
7. Grazia Cecere & Nicoletta Corrocher & Fabio Scarica, 2012. "Why do pirates buy music online? An empirical analysis on a sample of college students," Economics Bulletin, AccessEcon, vol. 32(4), pages 2955-2968.

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