Enhancing the profitability of pay what you want: A study of suggested prices

Abstract

AbstractA suggested price is oftentimes utilized in practice to enhance the profitability of pay what you want (PWYW). In this paper, we focus on this suggested price strategy. We conduct five experiments to explore factors that impact buyers' payments after seeing the suggested price. In Study 1, we show a relationship between the suggested price and payments. Intuitively, a higher suggested price results in increased payments. Studies 2A and 2B demonstrate that the relationship between the suggested price and payments is mediated by cost estimation, while Studies 3A and 3B display that the relationship is moderated by the presence of a charitable element. Interestingly, in the case with a charitable element, increasing the suggested price does not stimulate an increment in payments on a par with the case without a charitable element. This paper proposes that sellers who use PWYW could employ a suggested price to furnish buyers with pertinent cost information, but utilizing PWYW with a suggested price may not be suitable for products with a charitable component.