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

Author

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  • Greiff, Matthias
  • Egbert, Henrik
  • Xhangolli, Kreshnik

Abstract

Pay What You Want (PWYW) pricing has received considerable attention recently. 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. In this paper we present a theoretical model of buyer behavior under asymmetric information about production costs. Our model shows that information asymmetries provide an explanation for the results found in empirical studies.

Suggested Citation

  • Greiff, Matthias & Egbert, Henrik & Xhangolli, Kreshnik, 2013. "Pay What You Want – But Pay Enough! Information Asymmetries and PWYW Pricing," MPRA Paper 52766, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:52766
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Simon Gächter & Arno Riedl, 2005. "Moral Property Rights in Bargaining with Infeasible Claims," Management Science, INFORMS, vol. 51(2), pages 249-263, February.
    4. 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.
    5. Capra, C. Monica & Lanier, Kelli F. & Meer, Shireen, 2010. "The effects of induced mood on bidding in random nth-price auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 223-234, August.
    6. 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.
    7. 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.
    8. 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.
    9. Regner, Tobias, 2015. "Why consumers pay voluntarily: Evidence from online music," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 57(C), pages 205-214.
    10. Steve Buchheit & Nick Feltovich, 2011. "Experimental Evidence Of A Sunk‐Cost Paradox: A Study Of Pricing Behavior In Bertrand–Edgeworth Duopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 317-347, May.
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    Citations

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    Cited by:

    1. Greiff, Matthias & Egbert, Henrik, 2016. "A Survey of the Empirical Evidence on PWYW Pricing," MPRA Paper 68693, University Library of Munich, Germany.
    2. Stangl, Brigitte & Kastner, Margit & Prayag, Girish, 2017. "Pay-what-you-want for high-value priced services: Differences between potential, new, and repeat customers," Journal of Business Research, Elsevier, vol. 74(C), pages 168-174.
    3. Samahita, Margaret, 2015. "Pay-What-You-Want in Competition," Working Papers 2015:27, Lund University, Department of Economics.

    More about this item

    Keywords

    PWYW pricing; information asymmetry; fairness; buyer behavior;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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