Management & Marketing no. 2/2014

Pay What You Want – But Pay Enough! Information Asymmetries and PWYW Pricing

Matthias Greiff,
Justus‐Liebig‐University Giessen, Germany

Henrik Egbert,
Anhalt University of Applied Sciences, Bernburg, Germany

Kreshnik Xhangolli,
Anhalt University of Applied Sciences, Bernburg, Germany

Abstract. Pay What You Want (PWYW) pricing has received considerable attention recently. Through PWYW, companies entrust the buyers in determining the prices of specific products. Empirical studies show that when PWYW pricing is implemented buyers do not behave selfishly in a number of cases and that some sellers are able to use PWYW to increase turnover as well as profits. The technique may also be used to attract more customers and increase revenues. In this paper we present a theoretical model of buyer behavior under asymmetric information about production costs. Starting from the assumption of a not‐completely‐selfishly motivated buyer who follows individual fairness perceptions when asked to pay for a product which she has consumed or will consume, our model shows that information asymmetries in relation to costs provide an explanation for the results found in empirical studies. The theoretical model can be expanded such as to embody uncertainty with respect to the scale of production.

Keyword: PWYW pricing, information asymmetry, fairness, buyer behavior, willingness to pay (WTP).

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