Pay-as-you-wish pricing

Chen, Y and Koenigsberg, O and Zhang, J (2017) Pay-as-you-wish pricing. Marketing Science. ISSN 0732-2399 (In Press)

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Official URL: https://doi.org/10.1287/mksc.2017.1032

Abstract

Some firms use a curious pricing mechanism called “pay as you wish” pricing (PAYW). When PAYW is used, a firm lets consumers decide what a product is worth to them and how much they want to pay to get the product. This practice has been observed in a number of industries. In this paper, we theoretically investigate why and where PAYW can be a profitable pricing strategy relative to the conventional “pay as asked” pricing (PAAP) strategy. We show that PAYW has a number of advantages over PAAP such that it is well suited for some industries but not for others. These advantages are as follows: (1) PAYW helps a firm to maximally penetrate a market; (2) it allows a firm to price discriminate among heterogenous consumers; (3) it helps to moderate price competition. We derive conditions under which PAYW dominates PAAP and discuss ways to improve the profitability of PAYW.

Item Type: Article
Additional Information: © 2017 INFORMS
Subjects: P > Pricing
Subject Areas: Marketing
DOI: 10.1287/mksc.2017.1032
Date Deposited: 12 Jul 2017 13:18
Last Modified: 12 Jul 2017 13:18
URI: http://lbsresearch.london.edu/id/eprint/836

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