Paying for a Chance to Save Money: Two-Part Tariffs in Name-Your-Own-Price Markets

Paying for a Chance to Save Money: Two-Part Tariffs in Name-Your-Own-Price Markets Prior theoretical research has shown that a Name-Your-Own-Price (NYOP) seller can profit from charging each prospective buyer a non-refundable fee for the opportunity to place a bid, akin to an entry fee to the seller's store. We examine the profitability of such two-part tariffs in NYOP markets using incentive-compatible laboratory experiments. Our results show that a two-part tariff can be profitable for a NYOP seller, but the profitability is strongly moderated by the buyers' ability to jointly optimize their entry and bidding decisions. We find that when buyers are provided with a decision aid that partly offsets their cognitive limitations by calculating the payoff consequences of different candidate bids, the profitability of using a two-part tariff vanishes. Overall, our results suggest two-part tariffs increase NYOP profit in a standard information-poor setting in the short run, but they are not as profitable as theory would suggest when the bidders get more information or experience.

More information on Dr. Lucas Stich can be found at: https://www.ecm.bwl.uni-muenchen.de/personen/professoren/stich/index.html