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Pay-what-you-want pricing under competition: Breaking the Bertrand Trap

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  • Chao, Yong
  • Fernandez, Jose
  • Nahata, Babu

Abstract

This paper investigates the viability of Pay-What-You-Want (PWYW) pricing when firms compete without restrictions of a minimum payment requirement. When PWYW pricing is practiced without restricting the presence of consumers paying less than marginal cost, or any minimum payment requirement, then the only two equilibrium structures are: either both firms use posted, marginal cost pricing, or one firm adopts PWYW pricing and the other uses posted pricing. The asymmetric pricing equilibrium leads to a softening of price competition where both firms earn positive profits and the Bertrand Trap is broken.

Suggested Citation

  • Chao, Yong & Fernandez, Jose & Nahata, Babu, 2019. "Pay-what-you-want pricing under competition: Breaking the Bertrand Trap," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 82(C).
    • Handle: RePEc:eee:soceco:v:82:y:2019:i:c:s2214804318304208
    DOI: 10.1016/j.socec.2019.101453
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    References listed on IDEAS

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    8. Isaac, R. Mark & P. Lightle, John & A. Norton, Douglas, 2015. "The pay-what-you-want business model: Warm glow revenues and endogenous price discrimination," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 57(C), pages 215-223.
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    Cited by:

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    More about this item

    Keywords

    Pay-what-you-want pricing; Competition; Bertrand Trap;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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