Pay What You Like?

35 Pages Posted: 14 Jul 2009 Last revised: 23 Sep 2009

See all articles by Jose M. Fernandez

Jose M. Fernandez

University of Louisville

Babu Nahata

University of Louisville - College of Business - Department of Economics

Date Written: April 21, 2009

Abstract

We show that when a seller of a differentiated good offers 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 profitable 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.

Keywords: pay-what-you-like pricing, self-selection, multidimensional screening

JEL Classification: C72, D11, D21

Suggested Citation

Fernandez, Jose M. and Nahata, Babu, Pay What You Like? (April 21, 2009). Available at SSRN: https://ssrn.com/abstract=1433845 or http://dx.doi.org/10.2139/ssrn.1433845

Jose M. Fernandez (Contact Author)

University of Louisville ( email )

College of Business
University of Louisville
Louisville, KY 40292
United States
5028524861 (Phone)

HOME PAGE: http://louisville.edu/faculty/jmfern02

Babu Nahata

University of Louisville - College of Business - Department of Economics ( email )

Louisville, KY 40292
United States
502-852-4864 (Phone)