- 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.
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
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