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Pay What You Want – But Pay Enough! Information Asymmetries and PWYW Pricing

Listed author(s):
  • Matthias Greiff

    (Justus-Liebig-University Giessen, Germany)

  • Henrik Egbert

    (Anhalt University of Applied Sciences, Bernburg, Germany)

  • Kreshnik Xhangolli

    (Anhalt University of Applied Sciences, Bernburg, Germany)

Pay What You Want (PWYW) pricing has received considerable attention recently. Through PWYW, companies entrust the buyers in determining the prices of specific products. Empirical studies show that when PWYW pricing is implemented buyers do not behave selfishly in a number of cases and that some sellers are able to use PWYW to increase turnover as well as profits. The technique may also be used to attract more customers and increase revenues. In this paper we present a theoretical model of buyer behavior under asymmetric information about production costs. Starting from the assumption of a not-completely-selfishly motivated buyer who follows individual fairness perceptions when asked to pay for a product which she has consumed or will consume, our model shows that information asymmetries in relation to costs provide an explanation for the results found in empirical studies. The theoretical model can be expanded such as to embody uncertainty with respect to the scale of production.

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File URL: http://www.managementmarketing.ro/pdf/articole/449.pdf
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Article provided by Economic Publishing House in its journal Management & Marketing.

Volume (Year): 9 (2014)
Issue (Month): 2 (Summer)
Pages:

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Handle: RePEc:eph:journl:v:9:y:2014:i:2:n:7
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  1. Tobias Regner, 2010. "Why Consumers Pay Voluntarily: Evidence from Online Music," Jena Economic Research Papers 2010-081, Friedrich-Schiller-University Jena, revised 10 Dec 2014.
  2. Buchheit, Steve & Feltovich, Nick, 2010. "Experimental evidence of a sunk–cost paradox: a study of pricing behavior in Bertrand–Edgeworth duopoly," SIRE Discussion Papers 2010-124, Scottish Institute for Research in Economics (SIRE).
  3. Tobias Regner & Javier A. Barria, 2007. "Do Consumers Pay Voluntarily? The Case of Online Music," Jena Economic Research Papers 2007-011, Friedrich-Schiller-University Jena.
  4. C. Monica Capra & Shireen Meer & Kelli Lanier, 2006. "The Effects of Induced Mood on Bidding in Random N-th Price Auctions," Emory Economics 0607, Department of Economics, Emory University (Atlanta).
  5. Nick Feltovich, 2011. "The Effect of Subtracting a Constant from all Payoffs in a Hawk-Dove Game: Experimental Evidence of Loss Aversion in Strategic Behavior," Southern Economic Journal, Southern Economic Association, vol. 77(4), pages 814-826, April.
  6. Kim Ju-Young & Natter Martin & Spann Martin, 2010. "Kish: Where Customers Pay As They Wish," Review of Marketing Science, De Gruyter, vol. 8(2), pages 1-14, July.
  7. Simon Gächter & Arno Riedl, 2005. "Moral Property Rights in Bargaining with Infeasible Claims," Management Science, INFORMS, vol. 51(2), pages 249-263, February.
  8. 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.
  9. 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.
  10. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
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