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PWYW Pricing ex post Consumption: A Sales Strategy for Experience Goods

Henrik Egbert, Matthias Greiff and Kreshnik Xhangolli

MPRA Paper from University Library of Munich, Germany

Abstract: Pay What You Want (PWYW) pricing has received considerable attention recently. Empirical studies show that a PWYW pricing mechanism is able to increase a seller’s turnover and profit. This paper addresses PWYW pricing for bundles of experience goods. The paper shows that a PWYW pricing mechanism, if applied ex post consumption, separates the decision to buy from the decision how much to pay. Information asymmetries about the quality of the good are reduced during the act of consumption so that buyers are informed about the product’s quality when they decide how much to pay. As a consequence, risk-averse buyers who would otherwise refrain from purchasing under a fixed price mechanism, can be attracted to purchase under a PWYW pricing ex post consumption (PWYW-EPC) mechanism. In this case, the pricing mechanism itself constitutes a signal. The paper concludes that a PWYW pricing mechanism, applied ex post consumption, can be a profitable strategy for a seller if she sells bundles of experience goods and if she wants to attract risk-averse buyers for realizing economies of scale in production.

Keywords: PWYW pricing; PWYW-EPC; asymmetric information; economies of scale; experience good; bundling; ex post consumption (search for similar items in EconPapers)
JEL-codes: D4 D49 D8 M31 (search for similar items in EconPapers)
Date: 2014-02-03
New Economics Papers: this item is included in nep-com, nep-cta, nep-hme and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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