An Online Experiment in Voluntary Pricing

Cite this Article
Joshua D. Wright, An Online Experiment in Voluntary Pricing, Truth on the Market (October 01, 2007),

I’ve previously discussed the voluntary pricing strategy taken by restaurants and cafes in a handful of states to offer food and drink for free and allow customers to decide whether and how much they would pay.   I was rather skeptical about the profitability of this strategy in the retail setting.  But it looks like we may soon have another datapoint from another industry as the WSJ reports that Radiohead will sell its new album (“In Rainbows”) only as a digital download from its website and allowing fans to choose how much they will pay.  From the WSJ article:

By letting consumers dictate what they will pay for a digital copy of the album, the band will test theories of online pricing that have been the subject of much speculation in recent years — most notably, the notion that fans will pay a fair price for downloads if given the freedom to do so on their own terms.

Speaking of experiments in online behavior and “voluntary pricing,” Stan Liebowitz has posted a paper to SSRN critiquing the empirical claims in the highly publicized JPE Oberholzer-Gee and Strumpf paper on file-sharing which found little, if any, impact of file sharing on music sales.  Unfortunately for the economics profession, one aspect of the critique is that the authors of the JPE study have not been willing to share data with Liebowitz so that their findings can be replicated.