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Pay-what-you-want because I do not know how much to charge you

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  • Tudón M., José F.

Abstract

With any positive fraction of altruistic consumers in the population who give away any positive fraction of their gains from trade, there exists a high enough level of uncertainty about demand such that the monopolist prefers pay-what-you-want over the traditional monopoly or any other pricing mechanism. Low marginal costs facilitate the adoption of pay-what-you-want. Consumer welfare always increases with pay-what-you-want.

Suggested Citation

  • Tudón M., José F., 2015. "Pay-what-you-want because I do not know how much to charge you," Economics Letters, Elsevier, vol. 137(C), pages 41-44.
  • Handle: RePEc:eee:ecolet:v:137:y:2015:i:c:p:41-44 DOI: 10.1016/j.econlet.2015.10.021
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    References listed on IDEAS

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    1. Riener, Gerhard & Traxler, Christian, 2012. "Norms, moods, and free lunch: Longitudinal evidence on payments from a Pay-What-You-Want restaurant," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(4), pages 476-483.
    2. Ilya Segal, 2003. "Optimal Pricing Mechanisms with Unknown Demand," American Economic Review, American Economic Association, vol. 93(3), pages 509-529, June.
    3. Regner, Tobias & Barria, Javier A., 2009. "Do consumers pay voluntarily? The case of online music," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 395-406, August.
    4. Klaus M. Schmidt & Martin Spann & Robert Zeithammer, 2015. "Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets," Management Science, INFORMS, vol. 61(6), pages 1217-1236, June.
    5. Jun B. Kim & Paulo Albuquerque & Bart J. Bronnenberg, 2010. "Online Demand Under Limited Consumer Search," Marketing Science, INFORMS, vol. 29(6), pages 1001-1023, 11-12.
    6. Chao, Yong & Fernandez, Jose & Nahata, Babu, 2015. "Pay-what-you-want pricing: Can it be profitable?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 57(C), pages 176-185.
    7. Fehr, Ernst & Schmidt, Klaus M., 2006. "The Economics of Fairness, Reciprocity and Altruism - Experimental Evidence and New Theories," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
    8. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-1458, December.
    9. Regner, Tobias, 2014. "Social preferences? Google Answers!," Games and Economic Behavior, Elsevier, vol. 85(C), pages 188-209.
    10. 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 464-477, June.
    11. Pieter A. Gautier & Bas van der Klaauw, 2012. "Selection in a field experiment with voluntary participation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(1), pages 63-84, January.
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    More about this item

    Keywords

    Pay-what-you-want; Uncertainty; Behavioral pricing; Participative pricing;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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