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Do Consumers Pay Voluntarily? The Case of Online Music

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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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2007-011.

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Date of creation: 01 May 2007
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Handle: RePEc:jrp:jrpwrp:2007-011
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  1. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 47-74, March.
  2. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
  3. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
  4. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper 1998-37, Tilburg University, Center for Economic Research.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. Ruffle, Bradley J., 1999. "Gift giving with emotions," Journal of Economic Behavior & Organization, Elsevier, vol. 39(4), pages 399-420, July.
  10. Dufwenberg, Martin, 2002. "Marital investments, time consistency and emotions," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 57-69, May.
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