Pay-as-You-Wish Pricing

Chen, Y, Koenigsberg, O and Zhang, Z J (2017) Pay-as-You-Wish Pricing. Marketing Science, 36 (5). pp. 780-791. ISSN 0732-2399 OPEN ACCESS


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.

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Item Type: Article
Subject Areas: Marketing
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© 2017 INFORMS

Date Deposited: 12 Jul 2017 13:18
Date of first compliant deposit: 10 Jul 2017
Subjects: Pricing
Last Modified: 23 Jul 2024 02:00

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