Abstract
Abstract This paper introduces the Pay-What-You-Want game which represents the interaction between a buyer and a seller in a Pay-What-You-Want (PWYW) situation. The PWYW game embeds the dictator game and the trust game as subgames. This allows us to use previous experimental studies with the dictator and the trust game to identify three factors that can influence the success of PWYW pricing in business practice: (i) social context, (ii) social information, and (iii) deservingness. Only few cases of PWYW pricing for a longer period of time have been documented. By addressing repeated games, we isolate two additional factors which are likely to contribute to successful implementations of PWYW as a long term pricing strategy. These are (iv) communication and (v) the reduction of goal conflicts. The central contribution of this study is an attempt to bridge the gap between laboratory experiments and the research on PWYW pricing, which relies largely on evidence from the field. By reviewing the relevant experiments, this study identifies factors crucial for the success of PWYW pricing and provides guidance to developing long-term applications of PWYW pricing.
Highlights
For a seller it is essential to find an optimal pricing strategy for her products because the pricing mechanism determines the seller’s revenue and profit
Given the fast growing literature on PWYW pricing and the vague references to the dictator game (DG) and the trust game (TG) within this literature, we introduce the PWYW Game to analyze how PWYW pricing is related to the DG and the TG
We think that a closer look at the results from laboratory experiments on the DG and the TG can further refine and elaborate the existing literature on PWYW pricing
Summary
For a seller it is essential to find an optimal pricing strategy for her products because the pricing mechanism determines the seller’s revenue and profit. The third goal of this paper is to outline the factors that are essential variables for the success of PWYW pricing in the long-term The latter is relevant for the application of PWYW pricing in practice. We discuss three factors which drive individual behavior in the dictator and the trust game These factors are related to a single interaction between a buyer and a seller. We tackle this issue in the section "PWYW as a Repeated Game" by elaborating on some results from repeated DG and TG Based on this discussion, we identify (iv) communication and (v) the reduction of goal conflicts as factors that are likely to be relevant for the success of PWYW pricing in the long run.
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