Pay-as-You-Wish Pricing

Yuxin Chen (), Oded Koenigsberg () and Z. John Zhang ()
Additional contact information
Yuxin Chen: New York University Shanghai, 200122 Shanghai, China
Oded Koenigsberg: London Business School, London NW1 4SA, United Kingdom
Z. John Zhang: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104

Marketing Science, 2017, vol. 36, issue 5, 780-791

Abstract: Some firms use a curious pricing mechanism called “pay as you wish” pricing (PAYW). When PAYW is used, a firm lets consumers decide what a product is worth to them and how much they want to pay to get the product. This practice has been observed in a number of industries. In this paper, we theoretically investigate why and where PAYW can be a profitable pricing strategy relative to the conventional “pay as asked” pricing (PAAP) strategy. We show that PAYW has a number of advantages over PAAP such that it is well suited for some industries but not for others. These advantages are as follows: (1) PAYW helps a firm to maximally penetrate a market; (2) it allows a firm to price discriminate among heterogenous consumers; (3) it helps to moderate price competition. We derive conditions under which PAYW dominates PAAP and discuss ways to improve the profitability of PAYW.

Keywords: pricing strategy; competitive price discrimination; self-determined price (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:36:y:2017:i:5:p:780-791

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