Skip to main content
SpringerLink
Log in

The impact of buyer–seller relationships and reference prices on the effectiveness of the pay what you want pricing mechanism

  • Published:
Marketing Letters Aims and scope Submit manuscript

Abstract

Pay what you want (PWYW) is a new participative pricing mechanism that delegates the whole price determination to the buyer. Previous research on PWYW suggests that the final prices paid are not only affected by consumer characteristics but also by varying conditions, such as social distance within buyer–seller relationships and the provision of reference prices. Through an online survey and two field experiments, we test varying conditions of PWYW, such as social distance (buyer–seller relationship), provision of external reference price, product value, level of reputation, and duration of an application of PWYW. The results indicate that the provision of an external reference price is advantageous for the seller as the prices paid increase. The seller should also avoid offering products with high product value under PWYW conditions. Furthermore, increasing social distance may decrease the prices paid. Finally, a high level of reputation may be beneficial.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. Study stimuli (for online and offline experiments) as well as additional analyses (pretests) are available upon request

References

  • Aaker, D. A. (1991). Managing brand equity. New York: The Free Press.

  • Andreoni, J., & Bernheim, B. D. (2009). Social image and the 50–50 norm: A theoretical and experimental analysis of audience effects. Econometrica, 77(5), 1607–1636.

    Article  Google Scholar 

  • Andreoni, J., & Miller, J. (2002). Giving according to GARP: an experimental test of the consistency of preferences for altruism. Econometrica, 70(2), 737–753.

    Article  Google Scholar 

  • Andreoni, J., & Petrie, R. (2004). Public goods experiments without confidentiality: a glimpse into fund-raising. Journal of Public Economics, 88(7–8), 1605–1623.

    Article  Google Scholar 

  • Ariely, D., Bracha, A., & Meier, S. (2009). Doing good or doing well? image motivation and monetary incentives in behaving pro-socially. American Economic Review, 99(1), 544–555.

    Article  Google Scholar 

  • Bohnet, I., & Frey, B. S. (1999a). Social distance and other-regarding behavior in dictator games: Comment. The American Economic Review, 89(1), 335–339.

    Article  Google Scholar 

  • Bohnet, I., & Frey, B. S. (1999b). The sound of silence in prisoner’s dilemma and dictator games. Journal of Economic Behavior & Organization, 38(1), 43–57.

    Article  Google Scholar 

  • Bolton, G. E. (1991). A comparative model of bargaining: theory and evidence. American Economic Review, 81(5), 1096–1136.

    Google Scholar 

  • Bolton, G. E., Katok, E., & Zwick, R. (1998). Dictator game giving: rules of fairness versus acts of kindness. International Journal of Game Theory, 27(2), 269–299.

    Article  Google Scholar 

  • Borck, R., Frank, B., & Robledo, J. R. (2006). An empirical analysis of voluntary payments for information goods on the internet. Information Economics and Policy, 18(2), 229–239.

    Article  Google Scholar 

  • Cameron, L. A. (1999). Raising the stakes in the ultimatum game: Experimental evidence from Indonesia. Economic Inquiry, 37(1), 47–59.

    Article  Google Scholar 

  • Carpenter, J., Verhoogen, E., & Burks, S. (2005). The effect of stakes in distribution experiments. Economics Letters, 86(3), 393–398.

    Article  Google Scholar 

  • Charness, G., & Gneezy, U. (2008). What’s in a name? Anonymity and social distance in dictator and ultimatum games. Journal of Economic Behavior and Organization, 68(1), 29–35.

    Article  Google Scholar 

  • Chen Y, Koenigsberg O, Zhang ZJ (2009) Pay-as-You-Wish Pricing. https://server1.tepper.cmu.edu/Seminars/docs/Management-Science-ckz.pdf

  • Cherry, T. L., Frykblom, P., & Shogren, J. F. (2002). Hardnose the dictator. American Economic Review, 92(4), 1218–1221.

    Article  Google Scholar 

  • Diekmann, A. (2004). The power of reciprocity—fairness, reciprocity, and stakes in variants of the dictator game. Journal of Conflict Resolution, 48(4), 487–505.

    Article  Google Scholar 

  • Dodds, W. B., Monroe, K. B., & Grewal, D. (1991). Effects of price, brand, and store information on buyers’ product evaluations. Journal of Marketing Research, 28(3), 307–319.

    Article  Google Scholar 

  • Erdem, T., & Swait, J. (1998). Brand equity as a signaling phenomenon. Journal of Consumer Psychology, 7(2), 121–157.

    Article  Google Scholar 

  • Fehr, E., & Schmidt, K. M. (1999). A theory of fairness, competition, and cooperation. Quarterly Journal of Economics, 114(3), 817–868.

    Article  Google Scholar 

  • Forsythe, R., Horowitz, J. L., Savin, N. E., & Sefton, M. (1994). Fairness in simple bargaining experiments. Games and Economic Behavior, 6(3), 347–369.

    Article  Google Scholar 

  • Gneezy, A., Gneezy, U., Riener, G., & Nelson, L. D. (2012). Pay-what-you-want, identity and self-signaling in markets. Proceedings of the National Academy of Sciences, 109(19), 7236–7240.

    Article  Google Scholar 

  • Heyman, J., & Ariely, D. (2004). Effort for payment: A tale of two markets. Psychological Science, 15(11), 787–793.

    Article  Google Scholar 

  • Hoffman, E., McCabe, K., Shachat, K., & Smith, V. (1994). Preferences, property rights, and anonymity in bargaining games. Games and Economic Behavior, 7(3), 346–380.

    Article  Google Scholar 

  • Hoffman, E., McCabe, K., & Vernon, L. S. (1996). Social distance and other regarding behavior in dictator games. The American Economic Review, 86(3), 653–660.

    Google Scholar 

  • Isaac RM, Lightle JP, Norton DA (2010) The Pay-What-You-Like Business Model: Warm Glow Revenues and Endogenous Price Discrimination. Available at SSRN: http://ssrn.com/abstract=1612951 or 10.2139/ssrn.1612951

  • Johnson, J. W., & Cui, A. P. (2013). To influence or not to influence: External reference price strategies in pay-what-you-want pricing. Journal of Business Research, 66(2), 275–281.

    Article  Google Scholar 

  • Kim, J.-Y., Natter, M., & Spann, M. (2009). Pay-what-you-want—a new participative pricing mechanism. Journal of Marketing, 73(1), 44–58.

    Article  Google Scholar 

  • Kim J-Y, Natter M, Spann M (2010) Kish – Where Customers Pay As THEY Wish. Review of Marketing Science 8 (2): Article 3

  • Kim J-Y, Natter M, Spann M (2013) Why give away samples for free? Screen new customers by letting them pay what they want. Working Paper, Frankfurt am Main

  • Kopalle, P. K., & Lindsey-Mullikin, J. (2003). The impact of external reference price on consumer price expectations. Journal of Retailing, 79(4), 225–236.

    Article  Google Scholar 

  • Kumar, V., Hurley, M., Karande, K., & Reinartz, W. J. (1998). The impact of internal and external reference prices on brand choice: the moderating role of contextual variables. Journal of Retailing, 74(3), 401–426.

    Article  Google Scholar 

  • Mayhew, G. E., & Winer, R. S. (1992). An empirical analysis of internal and external reference prices using scanner data. Journal of Consumer Research, 19(1), 62–70.

    Article  Google Scholar 

  • Mazumdar, T., Raj, S. P., & Sinha, I. (2005). Reference price research: Review and propositions. Journal of Marketing, 69(4), 84–102.

    Article  Google Scholar 

  • Nicolau, J. (2012). Battle royal: zero-price effect vs relative vs referent thinking. Marketing Letters, 23(3), 661–669.

    Article  Google Scholar 

  • Palmeira, M. M. (2011). The zero-comparison effect. Journal of Consumer Research, 38(1), 16–26.

    Article  Google Scholar 

  • Rabin, M. (1993). Incorporating fairness into game theory and economics. American Economic Review, 83(5), 1281–1302.

    Google Scholar 

  • Regner, T., & Barria, J. A. (2009). Do consumers pay voluntarily? The case of online music. Journal of Economic Behavior and Organization, 71(2), 395–406.

    Article  Google Scholar 

  • Riener, G., & Traxler, C. (2012). Norms, moods, and free lunch: longitudinal evidence on payments from a pay-What-you-want restaurant. The Journal of Socio-Economics, 41(4), 476–483.

    Article  Google Scholar 

  • Roth, A. E. (1995). Bargaining experiments (Vol. 1). The Handbook of Experimental Economics: Princeton University Press, Princeton.

    Google Scholar 

  • Schlegelmilch, B. B., Love, A., & Diamantopoulos, A. (1997). Responses to different charity appeals: the impact of donor characteristics on the amount of donations. European Journal of Marketing, 31(8), 548–560.

    Article  Google Scholar 

  • Shampanier, K., Mazar, N., & Ariely, D. (2007). Zero as a special price: the true value of free products. Marketing Science, 26(6), 742–757.

    Article  Google Scholar 

  • Slonim, R., & Roth, A. E. (1998). Learning in high stakes ultimatum games: an experiment in the Slovak Republic. Econometrica, 66(3), 569–596.

    Article  Google Scholar 

  • Soetevent, A. R. (2005). Anonymity in giving in a natural context—a field experiment in 30 churches. Journal of Public Economics, 89(11–12), 2301–2323.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Marketing, Goethe-University Frankfurt, Frankfurt am Main, Hessen, Germany

    Ju-Young Kim & Katharina Kaufmann

  2. Institute of Marketing, University of Muenster, Muenster, Germany

    Manuel Stegemann

Authors
  1. Ju-Young Kim
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Katharina Kaufmann
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Manuel Stegemann
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Ju-Young Kim.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Kim, JY., Kaufmann, K. & Stegemann, M. The impact of buyer–seller relationships and reference prices on the effectiveness of the pay what you want pricing mechanism. Mark Lett 25, 409–423 (2014). https://doi.org/10.1007/s11002-013-9261-2

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11002-013-9261-2

Keywords

Search

Navigation