An article in the latest issue of Science argues that pay-what-you-want pricing schemes, when combined with charitable donations, increase profits for sellers and charities. Ayelet Gneezy et al, carried out a study on over 100,000 theme parkers. They manipulated two price-schemes for “souvenir photos:” One group could “pay what they want” ($0-whatever), the other paid a fixed price (i.e. $5.00). Additionally, half of each group was told that a large portion of their money was going to charity. Intriguingly, the group with the pay-what-you-want choice not only raised more money for chairty, but maximized profits for the amusement park as well.
In addition to offering a new strategy and incentive for firms to donate to charity, this article also sheds light on the psychology of philanthropy — “Free-riding” (paying $0) was decreased by the philanthropic factor. It appears that individuals are more likely to choose to pay a lot of money for an item if its cost is flexible and it’s “the right thing to do.”