Pay What You Like

Fernandez, Jose and Nahata, Babu (2009): Pay What You Like. Unpublished.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: pay-what-you-like pricing, self-selection, multidimensional screening, buffet pricing.
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior; D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory; D - Microeconomics > D4 - Market Structure and Pricing; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

References

Cabral, L. 2000. Introduction to Industrial Organization. Cambridge, Mass: MIT Press.

Kim, J., M. Natter., and M. Spann. 2009. Pay what you want: A new participative pricing mechanism. Journal of Marketing 73 44-58.

Mead, Rebeca. 2008. Check please. The New Yorker March 21.

Nahata, B., K. Ostaszweski, P. K. Sahoo. 1999. Buffet pricing. Journal of Business 72 215-228.

Rochet, J.-C., and L. Stole. 2003. The Economics of multidimensional screening. In Advances in Economics and Econometrics: Theory and Applications, Eighth World Congress, eds. M. Dewatripont, L. Hansen and S.Turnovsky. Cambridge: Cambridge University Press.

Sparks, R. 1986. A model of involuntary unemployment and wage rigidity: Worker incentives and the threat of dismissal. Journal of Labor Economics 4 560-581.

Wernerfelt, B. 2008. Class pricing. Marketing Science 27 755-63.