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Do Consumers Pay Voluntarily? The Case of Online Music

Author

Listed:
  • Tobias Regner

    (University of Jena, School of Busniess and Economics)

  • Javier A. Barria

    (Intelligent Systems + Networks group, Department of Electrical and Electronic Engineering, Imperial College London)

Abstract

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.

Suggested Citation

  • Tobias Regner & Javier A. Barria, 2007. "Do Consumers Pay Voluntarily? The Case of Online Music," Jena Economics Research Papers 2007-011, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2007-011
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    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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