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"Pay What You Want" May Deter Consumers

Pay-what-you-want pricing may inadvertently give consumers the untenable choice to either pay more or feel cheap, driving them away from making a purchase at all. Sophie Bushwick reports

Music, film and video game makes face a new online, digital world. And some are testing a revolutionary pricing system: "pay what you want." But a new study finds that when consumers can name their own price, many may opt out of buying at all. The study is in the Proceedings of the National Academy of Sciences. [Ayalet Gneezy et al., "Pay-what-you-want, identity, and self-signaling in markets"]

For the research, tour boat passengers posed for photos. Each boat ride announced a price of $15 per picture. But they then charged either $15, $5 or the option to pay what you want.

As expected, the fewest tourists purchased photos when they had to pay full price. But more customers bought photos when they cost $5 than when prices were pay what you want—which could have saved passengers even more.

The researchers suggest that choosing to pay less than an announced lower-than-expected price made people feel cheap. With choices then limited to spending more money or feeling like a tightwad, potential customers simply opted out of the purchase. So on sea or land, a low, set price may catch the most fish.

—Sophie Bushwick

[The above text is a transcript of this podcast.]

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