Feasibility and Strategic Value of Pay-What-You-Want Pricing Under Different Market Structures

The literature has always examined the feasibility of PWYW pricing under a single market structure and has paid less attention to the strategic value of PWYW pricing. These studies have focused on consumers’ payment decisions while ignoring sellers’ pricing decisions. To fill these gaps, we design a laboratory experiment based on a sample of 192 Chinese undergraduate students to comprehensively and systematically examine the feasibility and strategic value of PWYW pricing under three different market structures. The results show that PWYW pricing is more feasible for sellers in monopolistic markets than in competitive markets because buyers in monopolistic markets hold stronger intention-based and outcome-based social preferences; PWYW pricing can help sellers achieve a higher level of profitability when additional gains are available and the average production cost or marginal cost is low; whether PWYW sellers can cover the entire market depends on the market structure; and the PWYW seller can significantly reduce the average profit of the fixed-pricing seller, which may force the latter out of the market in the long run. These findings will advance our understanding of the feasibility and strategic value of PWYW pricing. In addition, this paper also contributes to the PWYW literature by creatively designing an experiment with three market structures.