Exploring the Role of Spotlight Effect in Pay-What-You-Want (PWYW) Pricing – An Anchoring and Adjustment Perspective

Abstract

This paper investigates social influences on Pay‐What‐You‐Want (PWYW) pricing decisions by combining a socio‐psychological phenomenon, called “spotlight effect” (defined as an egocentric bias while estimating the salience of one's own behavior and external appearance), with the well‐established “anchoring and adjustment” perspective. We test our hypotheses with one field study and two lab experiments. Findings show that when making a payment in PWYW setting, customers perceive greater attention on self (vs. others) and in the presence of distant (vs. close) others, which makes them initially anchor the price they are willing to pay on their internal reference price. However, this anchoring effect is adjusted downwards (i.e., reduced) in the presence of external reference prices. Our findings would help managers understand the factors influencing customers' PWYW pricing decisions, based on their internal and external reference prices. Managers can further use this knowledge to develop more effective strategies to drive higher PWYW prices.