The influence of external reference price strategies in a nonprofit arts organization's “pay-what-you-want” setting

Abstract

Nonprofit arts organizations face conflicting objectives to balance—or more specifically, to create—artistic and educational value and to generate financial income from various sources. Pay-what-you-want (PWYW), a participative pricing mechanism where services have no fixed price and customers actively decide what to pay, is a novel pricing mechanism and is of high interest for organizations and researchers alike. Based on the concepts of loss aversion and gain, this study presents a field experiment to test the effects of different PWYW pricing strategies on the amount of money paid by visitors of a German photo biennial. Explicitly, the provisions of minimum, maximum, and suggested external reference prices are compared to a setting with no external reference prices. We test the derived hypotheses, discuss the results, and provide implications for future research, as well as for the management of nonprofit arts organizations.