An analytical game perspective model for pay-what-you-want pricing schemes considering consumer fairness

The pay-what-you-want (PWYW) pricing scheme allows consumers to pay whatever amount they wish for a particular product or service. PWYW is increasingly being used by restaurants and the hotel industry in Western countries, and it is thus important to study consumer behavior when faced with the PWYW option and to further explore the acceptance of PWYW conditions from a theoretical perspective. The extant literature indicates that the perception a “fair price” in the mind of a consumer is the result of an evaluation based on comparing the price paid with the reference price. Fairness thus plays an important role in affecting consumers’ intentions to pay more than zero under the PWYW option. First, we develop a theoretical model that incorporates the consumer’s “fair price” into their utility function. Thus, we obtain different decisions and optimal Nash equilibrium prices across individuals. When a seller provides differentiated products and allows consumers the option to pay what they want, it is fascinating that, in our model setting, the scenario in which all consumers pay zero never provides an equilibrium solution as long as the consumers’ fair prices are positive. In contrast, a scenario in which all consumers are willing to pay a nonzero amount occurs under certain conditions. Furthermore, it is demonstrated that it is possible for this pricing system to be more profitable for the seller than a uniform pricing scheme. Finally, we conduct a sensitivity analysis of the parameters in our proposed model and present several illustrative examples to verify our results.