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PRESS YOU ARE HERE: Home > Marketing Science > List of Issues > Volume 36, Issue 5 > Pay-as-You-Wish Pricing
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Pay-as-You-Wish Pricing Yuxin Chen New York University Shanghai, 200122 Shanghai, China
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Oded Koenigsberg London Business School, London NW1 4SA, United Kingdom
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Z. John Zhang The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
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Permalink: https://doi.org/10.1287/mksc.2017.1032 Received: October 2, 2013 Accepted: December 5, 2016 Published Online: April 3, 2017 Page Range: 780 - 791
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Some firms use a curious pricing mechanism called “pay as you wish” pricing (PAYW). When PAYW is used, a firm lets consumers decide what a product is worth to them and how much they want to pay to get the product. This practice has been observed in a number of industries. In this paper, we theoretically investigate why and where PAYW can be a profitable pricing strategy relative to the conventional “pay as asked” pricing (PAAP) strategy. We show that PAYW has a number of advantages over PAAP such that it is well suited for some industries but not for others. These advantages are as follows: (1) PAYW helps a firm to maximally penetrate a market; (2) it allows a firm to price discriminate among heterogenous consumers; (3) it helps to moderate price competition. We derive conditions under which PAYW dominates PAAP and discuss ways to improve the profitability of PAYW. Keywords: pricing strategy; competitive price discrimination; self-determined price
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