Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260165 
Year of Publication: 
2015
Series/Report no.: 
Working Paper No. 2015:27
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
Pay-What-You-Want (PWYW) pricing schemes are popular in certain industries and not others. We model the seller's choice of pricing scheme under various market structures assuming consumers share their surplus. We show that the profitability and popularity of PWYW depend not only on consumers' preferences, but also on market structure, product characteristics and sellers' strategies. While there is no equilibrium where PWYW dominates the market, given a sufficiently high level of surplus-sharing and product differentiation, it is chosen by the second mover to avoid Bertrand competition. The equilibrium results and their associated market characteristics are consistent with empirical examples of PWYW.
Subjects: 
Pay-what-you-want
competition
product differentiation
market behavior
market structure
JEL: 
D11
D42
D43
L11
L12
L13
Document Type: 
Working Paper

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