Evaluation of the Efficacy of the Pay-What-You-Want Pricing Model

Pay-what-you-want (PWYW) is an economic model popularized in 2007 where rather than goods/services having a fixed price decided by the producer, the consumer themselves decides the price they pay as an individual. Classical economic theory evaluates consumers through the lens of them behaving as “rational agents”. Within this perspective, consumers would be expected to choose to pay nothing in order to maximize their consumer surplus and therefore utility. The empirical successes of PWYW models suggest that there are additional behavioral elements involved in utility maximization, where consumers are paying more than the required price. My research project is an evaluation of existing uses of PWYW alongside peer-reviewed research into economic theory about willingness to pay. PWYW offers theoretically perfect price discrimination, whereas a fixed-price model will always contain uncaptured surplus. This makes it an intriguing opportunity for producers while also being more equitable for consumers. When profitable, PWYW is Pareto-improving compared to a traditional fixed-price model. My presentation serves to showcase why consumers are willing to pay more than required and discuss potential markets where PWYW would be most effective. As the world becomes more and more digitized, PWYW models may have a key part to play in businesses who provide nonrival goods/services (“club goods”).