Pay-What-You-Want Pricing: Can It Be Profitable?

Journal of Behavioral and Experimental Economics (Forthcoming)

27 Pages Posted: 3 May 2014 Last revised: 28 Oct 2015

See all articles by Yong Chao

Yong Chao

University of Louisville - College of Business - Department of Economics

Jose M. Fernandez

University of Louisville

Babu Nahata

University of Louisville - College of Business - Department of Economics

Date Written: April 29, 2014

Abstract

Using a game theoretic framework, we show that not only can pay-what-you-want pricing generate positive profits, but it can also be more profitable than charging a fixed price to all consumers. Further, whenever it is more profitable, it is also Pareto-improving. We derive conditions in terms of two cost parameters, namely the marginal cost parameter for the seller, and the social preference parameter of a consumer to incorporate behavioral considerations for paying too little compared to her reference price.

Keywords: Pay-What-You-Want, Behavioral Game Theory, Monopoly

JEL Classification: C70, D03, D21, D42

Suggested Citation

Chao, Yong and Fernandez, Jose M. and Nahata, Babu, Pay-What-You-Want Pricing: Can It Be Profitable? (April 29, 2014). Journal of Behavioral and Experimental Economics (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2431906 or http://dx.doi.org/10.2139/ssrn.2431906

Yong Chao (Contact Author)

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

Louisville, KY 40292
United States
(502)852-3573 (Phone)
(502)852-7672 (Fax)

HOME PAGE: http://yongchao.us

Jose M. Fernandez

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)

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