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Pay What You Like

Author

Listed:
  • Fernandez, Jose
  • Nahata, Babu

Abstract

We show that when a seller of a di¤erentiated good o¤ers the product allowing consumers an option to pay what they like, then all consumers will never free ride in equilibrium when their valuations of the good are positive, and, under certain conditions, all will consumers would pay. Further, for the seller this pricing could be more pro�table than uniform pricing. If consumers consider the social cost of free riding, or not paying a "fair" price, then our results show that consumers, rather than free riding, may not opt for this option. Instead, they prefer to purchase the good at the market price from a price-setting firm.

Suggested Citation

  • Fernandez, Jose & Nahata, Babu, 2009. "Pay What You Like," MPRA Paper 16265, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:16265
    as

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    File URL: https://mpra.ub.uni-muenchen.de/16265/1/MPRA_paper_16265.pdf
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    References listed on IDEAS

    as
    1. Cabral, Luis M. B., 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, April.
    2. Nahata, Babu & Ostaszewski, Krzysztof & Sahoo, Prasanna, 1999. "Buffet Pricing," The Journal of Business, University of Chicago Press, vol. 72(2), pages 215-228, April.
    3. Mathias Dewatripont & Lars Peter Hansen & Stephen Turnovsky, 2003. "Advances in economics and econometrics :theory and applications," ULB Institutional Repository 2013/9557, ULB -- Universite Libre de Bruxelles.
    4. Sparks, Roger, 1986. "A Model of Involuntary Unemployment and Wage Rigidity: Worker Incentives and the Threat of Dismissal," Journal of Labor Economics, University of Chicago Press, vol. 4(4), pages 560-581, October.
    5. Birger Wernerfelt, 2008. "Class Pricing," Marketing Science, INFORMS, vol. 27(5), pages 755-763, 09-10.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Bourreau, Marc & Doğan, Pınar & Hong, Sounman, 2015. "Making money by giving it for free: Radiohead’s pre-release strategy for In Rainbows," Information Economics and Policy, Elsevier, vol. 32(C), pages 77-93.
    2. 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.
    3. Samahita Margaret, 2020. "Pay-What-You-Want in Competition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 20(1), pages 1-16, January.
    4. Gerpott Torsten J., 2016. "A review of the empirical literature on Pay-What-You-Want price setting," Management & Marketing, Sciendo, vol. 11(4), pages 566-596, December.

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    More about this item

    Keywords

    pay-what-you-like pricing; self-selection; multidimensional screening; buffet pricing.;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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