Why consumers pay voluntarily: Evidence from online music

Abstract

Customers of the online music label/store Magnatune can pay what they want for albums as long as the payment is within a given price range ($5-$18). On average, customers pay significantly more than they have to. We ran an online survey and collected responses from 227 frequent Magnatune customers to gain insights about the underlying motivations to pay more than necessary. We control for individual response-as well as sample selection-bias and find that reciprocity appears to be the major driver for generous voluntary payments.Being inclined to conform to social norms is a positive determinant for payments around the recommended price ($8).JEL classifications: C83, D03, D82, L82, L86, M21

A review of the empirical literature on Pay-What-You-Want price setting

“…Four other analyses contain opposite results (Gautier and Van der Klaauw, 2012 (in case of self-selected PWYW participants); Kim et al, 2014a (study 1); Schröder et al, 2015;Waskow et al, 2016). Ten publications report no significant gender impact on prices paid (Gahler, 2016;Gautier and Van der Klaauw, 2012 (in case of incidental encounter with PWYW offering); Gneezy et al, 2012;Kim et al, 2014a (study 2); Rachelor et al, 2011;Regner, 2015;Regner and Barria, 2009;Riener, 2008;Roy, 2015;Roy et al, 2016a).…”

“…Five studies identify significantly positive interrelations between age and PWYW prices (Borck et al, 2006;Kim et al, 2014a;León et al, 2012;Racherla et al, 2011;Waskow et al, 2016). Regner (2015) finds a negative association, whereas research of Gautier and Van der Klaauw (2012), Gneezy et al (2012) and Riener (2008) suggests an inverted U-shaped pattern.…”

“…Furthermore, suppliers have the option to provide customers with a small number of predetermined tiered prices and to ask them to select the price level they want to pay (Lynn, 1990). Finally, sellers can not only quote lower but also upper price limits, which customers are not entitled to overbid (Johnson and Cui, 2013;Regner, 2015;Regner and Barria, 2009;Regner and Riener, 2012). A commonality underlying the three variants of binding external RP is that they consistently imply a considerable dilution of the central idea of the PWYW method according to which seller price recommendations or pressures are undesired to ensure that buyers are really free in their decision on which amount they pay.…”

“…Four pieces of research contain indications that voluntary prices paid are higher in situations where buyers pay after they have already consumed or tried out the goods offered in a PWYW context than in cases where buyers first decide about their payment amount and then conBrought to you by | MIT Libraries Authenticated Download Date | 5/9/18 8:48 PM sume a service or receive the product they purchased (Drevs, 2013;Kim et al, 2014a;Machado and Sinha, 2012;Regner, 2015). An explanation for these differences in the amounts paid is that paying after service consumption or product trials reduces information asymmetries favoring sellers over buyers particularly in case of experience goods (Greiff et al, 2014).…”

“…Five studies indicate that the association between the two variables is significantly positive (Kim et al, 2009(Kim et al, , 2014Mills, 2013;Regner, 2015;Riener and Traxler, 2012). Three investigations observe an insignificant correlation (Borck et al, 2006;Roy, 2015;Roy et al, 2016a), but the validity of two of the three null-result-publications is low because they examine student samples with restricted income variances.…”