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Pay-What-You-Want in Competition

Author

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  • Samahita Margaret

    (School of Economics, University College Dublin, Dublin, Ireland)

Abstract

This paper presents an analysis of Pay-What-You-Want (PWYW) in competition which explains its entry and limited spread in the market. Sellers choose their pricing schemes sequentially while consumers share their surplus. The profitability and popularity of PWYW depend not only on consumers’ preferences, but also on market structure, product characteristics and sellers’ strategies. While there is no PWYW equilibrium, given a sufficiently high level of surplus-sharing and product differentiation, PWYW is chosen by later entrants to avoid Bertrand competition. The equilibrium results and their market characteristics are consistent with empirical examples of PWYW.

Suggested Citation

  • 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.
    • Handle: RePEc:bpj:bejtec:v:20:y:2020:i:1:p:16:n:8
    DOI: 10.1515/bejte-2018-0063
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    Keywords

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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