Charitable giving, suggestion, and learning from others: Pay-What-You-Want experiments at a coffee shop

an article by Sangkon Park (Korea Culture & Tourism Institute, Republic of Korea), Sohyun Nam (Sogang University, Republic of Korea) and Jungmin Lee (Seoul National University, Republic of Korea and IZA, Germany) published in Journal of Behavioral and Experimental Economics Volume 66 (February 2017)

Highlights

• We examine consumers' behavior under the Pay-What-You-Want pricing.
• We conducted a series of field experiments, implementing different pricing schemes.
• The PWYW combined with charity and reference price does not harm profitability.
• Buyers are sensitive to external references and seek to learn from others.
• Buyers try to behave in a socially appropriate manner in this unfamiliar environment.

Abstract

We examine consumer behavior under Pay-What-You-Want (PWYW) pricing by conducting a series of field experiments that implemented different pricing schemes at a coffee shop: PWYW, PWYW with charitable giving, PWYW with charitable giving and a suggested price, and – for comparison – a regular fixed price group and a fixed price with giving group.

We find that the PWYW scheme, when combined with charitable giving and a suggested price, yields net revenue as large as that under the fixed price scheme. We also find that consumers under PWYW with charitable giving are responsive to a suggested price and seek to learn from others.

JEL classification: D49; H41; C93

Full text (PDF)

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