Role of Regulatory Focus in Pay What You Want Pricing

Abstract
Sellers usually offer products and/or services and charge a price, depending on the
market conditions. In recent few decades, however, a new pricing system in which buyers
have either partial or full control over price determination has been available to them
(Chandran & Morwitz, 2005). Under the Pay What You Want (PWYW) pricing, for
example, buyers decide how much to pay; including zero price that the seller cannot reject
(Kim et al. 2009). The increasing popularity of such participative pricing system is justified
on the grounds that PWYW allows marketers and researchers alike to observe how
consumers think and act when they have the key role in price determination.
The extant literature on pricing is divided between two views. One is that higher
control in setting the price leads to a better participation in PWYW than routine settings
(Chandran & Morwitz 2005). Another is that not all individuals are favorably inclined to
participate in PWYW settings (Shalvi et al. 2013, Sinha et al. 2013). To bring orderliness in
the literature, therefore I plan to investigate the role of regulatory promotion versus
prevention focus (Higgins 1997) in PWYW settings.
In Study 1, I will examine whether chronic regulatory focus of buyers influence their
intention to participate in PWYW offering. From Regulatory focus theory (Higgins 1997), I
hypothesize that promotion-focused relative to prevention-focused, persons would be
positively inclined to participate in a PWYW system. That is, promotion focus would have
positive effects on the intention to participate but a prevention focus would have negative
effects on intention to participate.

In Study 2, I will investigate the behavior itself. That is, the outcome variable will be
the amount paid by promotion versus prevention-focused buyers. Given the evidence for
higher levels of dishonesty among promotion rather than prevention-focused persons (Gino &
Margolis, 2011), I predict that promotion-focused persons might pay less than preventionfocused ones.
In Study 3, I would investigate whether the differences between promotion- and
prevention-focused persons are unique to PWYW system. Thus, participants of two foci will
be exposed to products or services available under both the PWYW and fixed price systems.
The outcome variable will be intention to participate as in Study 1. My prediction is that
promotion- and prevention-focused persons will differ more in PWYW than fixed price
system (i.e, a moderation hypothesis).
Overall, then, my research will add to the existing literature on PWYW in three key
ways. First, it will introduce an individual difference variable of regulatory focus in PWYW
system. Second, findings may indicate why buyers who are more likely to participate actually
pay less and those reluctant to participate pay rather more. Third, findings may show that the
same individual difference variable that is critical in one setting such as PWYW may be of no
consequence in another setting such as fixed price system. Finally, my research is of practical
use to service providers offering PWYW pricing. If results are as predicted, it will be obvious
that the same PWYW might not be equally attractive to all consumers, and that what makes
one favorably inclined toward PWYW may not necessary result in higher profits to the
service provider.

References
Chandran, Sucharita and Vicki G. Morwitz (2005), Effects of Participative Pricing on
Consumers Cognitions and Actions: A Goal Theoretic Perspective, Journal of
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Crowe, Ellen, and E. Tory Higgins. "Regulatory focus and strategic inclinations:
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Gino, Francesca, and Joshua D. Margolis. "Bringing ethics into focus: How regulatory
focus and risk preferences influence (un) ethical behavior."Organizational Behavior
and Human Decision Processes 115.2 (2011): 145-156.
Kim, J. Y., Natter, M., & Spann, M. (2009). Pay what you want: A new participative
pricing mechanism. Journal of Marketing, 73, 4458.
Shalvi, Shaul, et al. "Pay to walk away: Prevention buyers prefer to avoid
negotiation." Journal of Economic Psychology 38 (2013): 40-49.
Sinha Rajiv, Machado Fernando (2013), The viability of Pay What You Want Pricing,
Working paper.