Delegating Pricing Power to Customers: Pay What You Want or Name Your Own Price
| Autor: | Lucas Stich, Martin Spann, Klaus M. Schmidt, Florentin Krämer |
|---|---|
| Rok vydání: | 2015 |
| Předmět: |
Marginal cost
Organizational Behavior and Human Resource Management Economics and Econometrics business.industry jel:D40 05 social sciences Reference price TheoryofComputation_GENERAL jel:D22 jel:D21 jel:D03 Power (social and political) Competition (economics) Microeconomics jel:L11 competitive strategies consumer-driven pricing mechanisms name your own price pay what you want jel:M31 0502 economics and business 050211 marketing Laboratory experiment Fixed cost business Tertiary sector of the economy 050203 business & management Market penetration |
| Popis: | Pay What You Want (PWYW) and Name Your Own Price (NYOP) are customer-driven pricing mechanisms that give customers (some) pricing power. Both have been used in service industries with high fixed costs to price discriminate without setting a reference price. Their participatory and innovative nature gives rise to promotional benefits that do not accrue to posted-price sellers. We explore the nature and effects of these benefits and compare PWYW and NYOP using controlled lab experiments. We show that PWYW is a very aggressive strategy that achieves almost full market penetration. It can be profitable if there are promotional benefits and if marginal costs are low. In contrast, NYOP can be used profitably also if marginal costs are high and if there are no such benefits. It reduces price competition and segments the market. In a second experiment, we generate promotional benefits endogenously. We show that PWYW monopolizes the follow-up market but fails to be profitable. NYOP is less successful in penetrating the market but yields much higher profits. |
| Databáze: | OpenAIRE |
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