Do Consumers Pay Voluntarily? The Case of Online Music

Posted: 4 Oct 2007

See all articles by Tobias Regner

Tobias Regner

Universit├Ąt Jena

Javier A. Barria

Imperial College London

Date Written: May 2007

Abstract

The paper analyses the payment behaviour of customers of the online music label Magnatune. Customers may pay what they want for albums, as long as the payment is within a given price range ($5-$18). Magnatune's comprehensive pre-purchase access facilitates music discovery and allows an informed buying decision setting it apart from conventional online music stores. On average customers pay $8.20, far more than the minimum of $5 and even higher than the recommended price of $8. We analyse the relationship between artists/labels and customers in online music. We consider social preferences, in particular concerns for reciprocity. The resulting sequential reciprocity equilibrium corresponds to the observed pattern of behaviour. We conclude that Magnatune's open contracts design can encourage people to make voluntary payments and may be a viable business option.

Keywords: social preferences, reciprocity, music industry, experience goods, psychological game theory, emotions

JEL Classification: C24, C70, C93, D82, L82

Suggested Citation

Regner, Tobias and Barria, Javier A., Do Consumers Pay Voluntarily? The Case of Online Music (May 2007). Jena Economic Research Paper No. 2007-011. Available at SSRN: https://ssrn.com/abstract=1019217

Tobias Regner (Contact Author)

Universit├Ąt Jena ( email )

Carl-Zeiss-Str. 3
Jena, 07743
Germany

Javier A. Barria

Imperial College London ( email )

Exhibition Road
London SW7 2AZ
United Kingdom

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