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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan


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1935-1704
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Pay-What-You-Want in Competition

Margaret Samahita
Published Online: 2019-06-08 | DOI: https://doi.org/10.1515/bejte-2018-0063

Abstract

This paper presents an analysis of Pay-What-You-Want (PWYW) in competition which explains its entry and limited spread in the market. Sellers choose their pricing schemes sequentially while consumers share their surplus. The profitability and popularity of PWYW depend not only on consumers’ preferences, but also on market structure, product characteristics and sellers’ strategies. While there is no PWYW equilibrium, given a sufficiently high level of surplus-sharing and product differentiation, PWYW is chosen by later entrants to avoid Bertrand competition. The equilibrium results and their market characteristics are consistent with empirical examples of PWYW.

Keywords: pay-what-you-want; competition; product differentiation; market structure

JEL Classification: D11; D21; L11

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About the article

Published Online: 2019-06-08


This work was supported by Jan Wallanders och Tom Hedelius Stiftelse samt Tore Browaldhs Stiftelse, Funder Id: http://dx.doi.org/10.13039/100007439, Grant Number: 2014-0041:1


Citation Information: The B.E. Journal of Theoretical Economics, 20180063, ISSN (Online) 1935-1704, DOI: https://doi.org/10.1515/bejte-2018-0063.

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