This is the latest version of this item.
Abstract
Pay What You Want (PWYW) can be an attractive marketing strategy to price discriminate between fair-minded and selfish customers, to fully penetrate a market without giving away the product for free, and to undercut competitors that use posted prices. We report on laboratory experiments that identify causal factors determining the willingness of buyers to pay voluntarily under PWYW. Furthermore, to see how competition affects the viability of PWYW, we implement markets in which a PWYW seller competes with a traditional seller. Finally, we endogenize the market structure and let sellers choose their pricing strategy. The experimental results show that outcome-based social preferences and strategic considerations to keep the seller in the market can explain why and how much buyers pay voluntarily to a PWYW seller. We find that PWYW can be viable in isolation, but it is less successful as a competitive strategy because it does not drive traditional posted-price sellers out of the market. Instead, the existence of a posted-price competitor reduces buyers’ payments and prevents the PWYW seller from fully penetrating the market. If given the choice, the majority of sellers opt for setting a posted price rather than a PWYW pricing. We discuss the implications of these results for the use of PWYW as a marketing strategy.
Item Type: | Paper |
---|---|
Keywords: | customer-driven pricing mechanisms, pay what you want, revenue management, price discrimination, social preferences |
Faculties: | Economics Economics > Munich Discussion Papers in Economics Economics > Chairs > Seminar for Economic Theory |
Subjects: | 300 Social sciences > 300 Social sciences, sociology and anthropology 300 Social sciences > 330 Economics |
URN: | urn:nbn:de:bvb:19-epub-14308-5 |
Language: | English |
Item ID: | 14308 |
Date Deposited: | 22. Dec 2012, 06:55 |
Last Modified: | 26. Apr 2023, 20:24 |
References: | Andreoni, J., J. Miller. 2002. Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism. Econometrica. 70(2) 737-753. Berg, J., J. Dickhaut, K. McCabe. 1995. Trust, Reciprocity, and Social History. Games and Economic Behavior. 10(1) 122-42 Bolton, G.E., E. Katok, A. Ockenfels. 2004. How Effective Are Electronic Reputation Mechanisms? An Experimental Investigation. Management Science. 50(11) 1587-1602. Bolton, G.E., A. Ockenfels. 2000. ERC: A Theory of Equity, Reciprocity, and Competition. American Economic Review. 90(1) 166-193. Brown, M., A. Falk, E. Fehr. 2004. Relational Contracts and the Nature of Market Interactions. Econometrica. 72(3) 747-780. Chen, X., O. Koenigsberg, and Z.J. Zhang. 2010. Pay as You Wish Pricing, mimeo. Dufwenberg, M., G. Kirchsteiger. 2004. A theory of sequential reciprocity. Games and Economic Behavior. 47(2) 268-298. Falk, A., U. Fischbacher. 2006. A theory of reciprocity. Games and Economic Behavior. 54(2) 293-315. Fehr, E., A. Klein, K.M. Schmidt. 2007. Fairness and Contract Design. Econometrica. 75(1) 121-154. Fehr, E., K.M. Schmidt. 1999. A Theory of Fairness, Competition, and Cooperation. The Quarterly Journal of Economics. 114(3) 817-868. Fehr, E., K.M. Schmidt. 2006. The Economics of Fairness, Reciprocity and Altruism - Experimental Evidence and New Theories. Kolm, S-C., J.M. Ythier (eds.) Handbook on the Economics of Giving, Reciprocity and Altruism, Vol. 1, Amsterdam (2006): Elsevier, 615-691. Fischbacher, U. 2007. z-Tree: Zurich toolbox for ready-made economic experiments. Experimental Economics. 10(2) 171-178. Gautier, P.A., B. van der Klaauw, B. 2012. Selection in a field experiment with voluntary participation. Journal of Applied Econometrics. 27(1) 63-84. Gneezy, A., U. Gneezy, L.D. Nelson, A. Brown. 2010. Shared Social Responsibility: A Field Experiment in Pay-What-You-Want Pricing and Charitable Giving. Science. 329(5989) 325-327. Gneezy, A., U. Gneezy, G. Riener, L.D. Nelson. 2012. Pay-what-you-want, identity, and self-signaling in markets. Proceedings of the National Academy of Sciences, forthcoming. Greiner, B. 2004. The Online Recruitment System ORSEE - A Guide for the Organization of Experiments in Economics. University of Cologne, Cologne, Germany. Kim, J.-Y., M. Natter, M. Spann. 2009. Pay What You Want: A New Participative Pricing Mechanism. Journal of Marketing. 73(1) 44-58. Kim, J.-Y., M. Natter, M. Spann. 2010. Kish: Where Customers Pay As They Wish. Review of Marketing Science. 8(2) Artricle 3. Kreps, D.M., P. Milgrom, J. Roberts, R. Wilson. 1982. Rational cooperation in the finitely repeated prisoners' dilemma. Journal of Economic Theory. 27(2) 245-252. León, F.J., J.A. Noguera, J. Tena-Sánchez. 2012. How much would you like to pay? Trust, reciprocity and prosocial motivations in El trato. Social Science Information. 51(3) 389-417. Mak, V., R. Zwick, A.R. Rao. 2010. “Pay what you want” as a profitable pricing strategy: Theory and experimental evidence. University of Cambridge, Cambridge, UK. Rabin, M. 1993. Incorporating Fairness into Game Theory and Economics. The American Economic Review. 83(5) 1281-1302. Regner, T., J.A. Barría. 2009. Do consumers pay voluntarily? The case of online music. Journal of Economic Behavior and Organization. 71(2) 395-406. Regner, T. 2009. Social preferences? Google answers! Jena Economic Research Papers in Economics 2009-035. University of Jena, Jena, Germany. Riener G., C. Traxler. 2012. Norms, moods and free lunch: Longitudinal evidence on payments from a Pay-What-You-Want restaurant. Journal of Socio-Economics. 41(4) 476-483. |
Available Versions of this Item
-
Pay What You Want as a Marketing Strategy
in Monopolistic and Competitive Markets. (deposited 01. Jan 2013, 16:00)
- Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets. (deposited 22. Dec 2012, 06:55) [Currently Displayed]