Why Pay Something Rather than Nothing? Simulating A Beat-the-Average Game in a Pay-What-You-Want Pricing Scheme


Pay-what-you-want (PWYW) pricing models have received increased but still comparatively little attention in economics research. However, many businesses run under such a pricing structure. PWYW pricing only works in particular markets for specific goods, and is not always successful. In the first section, I review the current literature on pay-what-you-want (PWYW) pricing methods. In the second section, I develop a general utility model for consumers in a PWYW price setting to explain why the average purchase price is higher and the purchase rate is lower under certain PWYW pricing conditions. In the third section, I simulate a beat-the-average game under a PWYW pricing scheme, in which customers are asked to pay higher than the average price when the average price is unknown to them.