Refining the freeloading and no purchase behavior in pay as you wish pricing

Abstract

AbstractPay as you wish (PAYW) pricing offers a radical shift from posted pricing schemes. Modeling consumer behavior under PAYW pricing promises insights into conditions under which PAYW is profitable. Firstly, this paper extends an established model that builds on inequity-averse consumers and models their behavior in PAYW as well as the seller’s profits. The paper uses a comprehensive approach to describe consumers with low fairness concerns and points to a new segment of consumers who were not considered in previous PAYW models. They are characterized by a decision not to buy a good under a PAYW pricing policy, even if they can get it for free, and are not strongly averse to advantageous inequity. Secondly, the paper discusses the profitability of PAYW with a suggested price when the seller’s ability to suggest high prices is limited. Thirdly, the paper incorporates the effect of disadvantageous inequity aversion on PAYW with a minimum price. Finally, the paper offers guidelines on how a seller should choose the optimal pricing policy.