A Game-theoretic Model of the Consumer Behavior Under Pay-What-You-Want Pricing Strategy

Vahid Ashrafimoghari and Jordan W. Suchow

Papers from arXiv.org

Abstract: In a digital age where companies face rapid changes in technology, consumer trends, and business environments, there is a critical need for continual revision of the business model in response to disruptive innovation. A pillar of innovation in business practices is the adoption of novel pricing schemes, such as Pay-What-You-Want (PWYW). In this paper, we employed game theory and behavioral economics to model consumers' behavior in response to a PWYW pricing strategy where there is an information asymmetry between the consumer and supplier. In an effort to minimize the information asymmetry, we incorporated the supplier's cost and the consumer's reference prices as two parameters that might influence the consumer's payment decision. Our model shows that consumers' behavior varies depending on the available information. As a result, when an external reference point is provided, the consumer tends to pay higher amounts to follow the social herd or respect her self-image. However, the external reference price can also decrease her demand when, in the interest of fairness, she forgoes the purchase because the amount she is willing to pay is less that what she recognizes to be an unrecoverable cost to the supplier.

Date: 2022-07
New Economics Papers: this item is included in nep-gth, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2207.08923 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2207.08923

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().