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Delegating Pricing Power to Customers: Pay What You Want or Name Your Own Price

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  • Schmidt, Klaus
  • Krämer, Florentin
  • Spann, Martin
  • Stich, Lucas

Abstract

Pay What You Want (PWYW) and Name Your Own Price (NYOP) are customer-driven pricing mechanisms that give customers (some) pricing power. Both have been used in service industries with high fixed capacity costs in order to appeal to additional customers by reducing prices without setting a reference price. In this experimental study we compare the functioning and the performance of these two pricing mechanisms. We show that both mechanisms can be successfully used to endogenously price discriminate. PWYW can be very successful if there is an additional promotional benefit to using PWYW and if marginal costs are not too high. PWYW is a very aggressive competitive strategy that achieves almost full market penetration. NYOP is a less aggressive strategy that can also be used if marginal costs are high. It reduces price competition and segments the market. Low valuation customers are more likely to use NYOP while high valuation customers prefer a posted price seller.

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  • Schmidt, Klaus & Krämer, Florentin & Spann, Martin & Stich, Lucas, 2015. "Delegating Pricing Power to Customers: Pay What You Want or Name Your Own Price," CEPR Discussion Papers 10605, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10605
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    Cited by:

    1. Vahid Ashrafimoghari & Jordan W. Suchow, 2022. "A Game-theoretic Model of the Consumer Behavior Under Pay-What-You-Want Pricing Strategy," Papers 2207.08923, arXiv.org.
    2. Preeti Narwal & J. K. Nayak, 2020. "Investigating relative impact of reference prices on customers’ price evaluation in absence of posted prices: a case of Pay-What-You-Want (PWYW) pricing," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 19(4), pages 234-247, August.
    3. Greiff, Matthias & Egbert, Henrik, 2016. "A Survey of the Empirical Evidence on PWYW Pricing," MPRA Paper 68693, University Library of Munich, Germany.
    4. Gerpott, Torsten J. & Schneider, Christina, 2016. "Buying behaviors when similar products are available under pay-what-you-want and posted price conditions: Field-experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 65(C), pages 135-145.
    5. Rafael Luis Wagner, 2019. "Lowering consumers’ price image without lowering their internal reference price: the role of pay-what-you-want pricing mechanism," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 18(4), pages 332-341, August.
    6. Stich, Lucas & Spann, Martin & Schmidt, Klaus M., 2022. "Paying for open access," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 273-286.
    7. Samahita Margaret, 2020. "Pay-What-You-Want in Competition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 20(1), pages 1-16, January.
    8. Wang, Cindy Xin & Yuan, Hong & Beck, Joshua T., 2022. "Too tired for a good deal: How customer fatigue shapes the performance of Pay-What-You-Want pricing," Journal of Business Research, Elsevier, vol. 144(C), pages 987-996.
    9. Preeti Narwal & J. K. Nayak & Shivam Rai, 2022. "Assessing Customers' Moral Disengagement from Reciprocity Concerns in Participative Pricing," Journal of Business Ethics, Springer, vol. 178(2), pages 537-554, June.
    10. Sulser, Pascal A., 2021. "Pay-per-minute pricing: A field experiment comparing traditional and participative pricing mechanisms," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 92(C).
    11. Jordi Tena‐Sánchez & Francisco J. León‐Medina & José A. Noguera, 2020. "Empathic cultural consumers: Pay what you want in the theater," Journal of Consumer Affairs, Wiley Blackwell, vol. 54(4), pages 1213-1245, December.
    12. Elisa Hofmann & Deliah Bolesta & Aya Adra, 2023. "Immorality Judgments and Framing Effects in Voluntary Payment Settings," Jena Economics Research Papers 2023-010, Friedrich-Schiller-University Jena.
    13. Martin Spann & Robert Zeithammer & Marco Bertini & Ernan Haruvy & Sandy D. Jap & Oded Koenigsberg & Vincent Mak & Peter Popkowski Leszczyc & Bernd Skiera & Manoj Thomas, 2018. "Beyond Posted Prices: the Past, Present, and Future of Participative Pricing Mechanisms," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 5(1), pages 121-136, March.
    14. Hofmann, Elisa & Fiagbenu, Michael E. & Özgümüs, Asri & Tahamtan, Amir M. & Regner, Tobias, 2021. "Who is watching me? Disentangling audience and interpersonal closeness effects in a Pay-What-You-Want context," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 90(C).
    15. Hillenbrand, Adrian & Verrina, Eugenio, 2022. "The asymmetric effect of narratives on prosocial behavior," Games and Economic Behavior, Elsevier, vol. 135(C), pages 241-270.
    16. Di Domenico, Giandomenico & Premazzi, Katia & Cugini, Antonella, 2022. "“I will pay you more, as long as you are transparent!”: An investigation of the pick-your-price participative pricing mechanism," Journal of Business Research, Elsevier, vol. 147(C), pages 403-419.
    17. Elisa Hofmann & Michael E. Fiagbenu & Asri Özgümüs & Amir M. Tahamtan & Tobias Regner, 2018. "My Peers are Watching me - Audience and Peer Effects in a Pay-What-You-Want Context," Jena Economics Research Papers 2018-019, Friedrich-Schiller-University Jena.
    18. Ali Sabbaghnia & Jafar Heydari & Jafar Razmi, 2023. "Participative pricing and donation programs in a socially concerned supply chain," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(1), pages 146-164, January.
    19. Adrian Hillenbrand & Eugenio Verrina, 2018. "The differential effect of narratives prosocial behavior," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2018_16, Max Planck Institute for Research on Collective Goods, revised Jun 2020.

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    More about this item

    Keywords

    Consumer-driven pricing mechanisms; Pay what you want; Name your own price; Competitive strategies;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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