Pay What You Want as a Marketing Strategy in Monopolistic and Competitive Markets

  • Schmidt K
  • Spann M
  • Zeithammer R
  • 72

    Readers

    Mendeley users who have this article in their library.
  • 23

    Citations

    Citations of this article.

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 on a monopolistic market, 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. When given the choice, most sellers opt for setting a posted price rather than a PWYW pricing strategy. We discuss the implications of these results for the use of PWYW as a marketing strategy. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.1946.

Author-supplied keywords

  • cooperation
  • customer-driven pricing mechanisms
  • economics
  • fairness
  • identity
  • pay what you want
  • preferences
  • price discrimination
  • reciprocity
  • revenue management
  • social preferences
  • trust

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document

Authors

  • K M Schmidt

  • M Spann

  • R Zeithammer

Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free