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Pay-What-You-Want in Competition

Margaret Samahita

No 2015:27, Working Papers from Lund University, Department of Economics

Abstract: Pay-What-You-Want (PWYW) pricing schemes are popular in certain industries and not others. We model the seller's choice of pricing scheme under various market structures assuming consumers share their surplus. We show that the profitability and popularity of PWYW depend not only on consumers' preferences, but also on market structure, product characteristics and sellers' strategies. While there is no equilibrium where PWYW dominates the market, given a sufficiently high level of surplus-sharing and product differentiation, it is chosen by the second mover to avoid Bertrand competition. The equilibrium results and their associated market characteristics are consistent with empirical examples of PWYW.

Keywords: Pay-what-you-want; competition; product differentiation; market behavior; market structure (search for similar items in EconPapers)
JEL-codes: D11 D42 D43 L11 L12 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cse and nep-mkt
Date: 2015-09-15
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