Pay-What-You-Want Pricing Schemes: A Self-Image Perspective
Goytom Kahsay and
No 2014:6, Working Papers from Lund University, Department of Economics
Pay-What-You-Want (PWYW) pricing schemes are becoming increasingly popular in a wide range of industries. We develop a model incorporating self-image into the buyer's utility function and introduce heterogeneity in consumption utility and image-sensitivity, which generates different purchase decisions and optimal prices across individuals. When a good is sold at a fixed price higher than a threshold value, a price that the individual thinks is fair, the adoption of PWYW increases his utility and hence results in a weakly higher purchase rate. When a good is sold at a fixed price lower than this threshold, however, PWYW can lead to a lower utility. This may result in a lower purchase rate and higher average price, in line with previously unexplained evidence from field experiments. Moreover, an increase in the threshold value decreases the buyer's utility and may further lower the purchase rate, possibly resulting in a further increase in purchase price. Using simple assumptions of quadratic self-image function and uniformly distributed individual preferences, we investigate the conditions under which PWYW yields higher total welfare.
Keywords: pay-what-you-want; self-image; fairness; voluntary contribution (search for similar items in EconPapers)
JEL-codes: D03 D11 D49 D64 D82 (search for similar items in EconPapers)
Pages: 20 pages
New Economics Papers: this item is included in nep-cbe, nep-mic, nep-mkt and nep-upt
References: Add references at CitEc
Citations: Track citations by RSS feed
Published as Kahsay, Goytom Abraha and Margaret Samahita, 'Pay-What-You-Want Pricing Schemes: A Self-Image Perspective' in Journal of Behavioral and Experimental Finance, 2015, pages 17-28.
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
Journal Article: Pay-What-You-Want pricing schemes: A self-image perspective (2015)
Working Paper: Pay-What-You-Want Pricing Schemes: A Self-Image Perspective (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2014_006
Access Statistics for this paper
More papers in Working Papers from Lund University, Department of Economics Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by David Edgerton ().