Pay-What-You-Want Pricing for Mobile Applications: The Effect of Social Information and Privacy Assurances

Pradeep Racherla, West Texas A&M University
Mark Jeffrey Keith, West Texas A&M University
Jeffrey S. Babb Jr., West Texas A&M University


The market for mobile apps is expanding quickly. Customer value for these apps is determined not only positively by apputility, but also negatively by the perceived privacy risk which associated with disclosing sensitive private information suchas customer identity and geographical location. Currently, the most common app price is one to two dollars—similar to thatof a single song from an album on Apple iTunes. Because of the social nature of many of these apps, and the characteristicsof the primary user base (those ages 18-29), we examine how the pay-what-you-want pricing model—which has beensuccessful in certain instances in the music industry—would work in the market for mobile apps. Using a theoretical modelbased on social information and reference pricing and an empirical experiment involving 1079 participants, we find thatprivacy assurance is the largest contributing factor to a customer’s willingness-to-pay for mobile apps.