More News on the Pay-What-You-Wish Front

We recently posted about a taxi driver who runs his business on a pay-what-you-wish (PWYW) model. In response, a few readers sent along interesting notes.

Gregory Taylor tells us about a law firm in Chicago called Valorem that pitches itself as revolutionary on several fronts, including its use of “Value Line Adjustments” in its pricing:

On each bill, you have the right to make any adjustment to our proposed fee that you feel is needed. We provide value or you adjust the bill, it’s that simple.

We do this to give you the ultimate check on our unwavering commitment to client service, and to eliminate the concern that our level of service will wane once the work we’ve performed exceeds a given flat rate or capped fee allotment.

Some have said that the Value Adjustment Line is extremely risky. We agree. If we aren’t willing to risk our own fees on our service, do you really want us advocating for you?

From Hawaii comes a note from Dr. Reed Shiraki, a chiropractor whose e-mail address (honorboxdoc) and url (honorboxchiropractic.com) give him away. He explains here how he started using the honor box for his business, and discusses some of the challenges here:

There’s been hard times. Times when I would open the box, count the money, and worry about how in the world the bills would ever get paid. There have been frustrating moments, like the time someone left me a Subway Club Card as payment.

But for the most part, I have come to believe that it is not from the pockets of my patients that the box gets filled, but rather, from the windows of heaven. God fills the box.

And we also heard from Jose Fernandez, an economist at the University of Louisville, who has “written a paper on Pay What You Like Pricing where much of the theoretical outcomes coincide with many of the comments posted by your readers.”

The paper can be found here (pdf); keep in mind it is a working paper, but here is a tantalizing excerpt:

Under certain conditions, for a risk-neutral firm, Pay What You Like pricing could be more profitable than uniform pricing and hence there is an incentive for the firm to use this pricing. For risk-averse firms this incentive becomes even stronger. Additionally, this form of pricing becomes more attractive from a profit standpoint when savings result from eliminating costs related to price setting, especially when the cost of setting a price is large.

Considering the very vigorous pushback to James McWilliams‘s recent post about farmers’ markets, I’d be interested in hearing from anyone who has experience with a PWYW model at a farmers’ market, whether from the buyer’s or seller’s side.


Tony C

I wonder if you could apply this to a field that has had a monopoly in their business for years. The US public school system.
How would this affect the quality of education?

Levi

Has anyone addressed the potential for those using this model to avoid taxes? Seems to be there would a much smaller paper trail of income under the PWYW model.

BSK

If God fills the box, sign me up!

Andrew

Anyone tried to negotiate for a rikshaw in north India to hear the response "as you like," which you find out is not true at all when you try to shortchange the driver.

Vera

I would really like a pay-what-I-wish salary at my job.

Then maybe, I could finally pay off my bills.

RJS

I suspect that the PWYW model breaks down when there's no personal connection between buyer and "seller". I.e., it wouldn't work over the Internet, as Stephen King discovered a few years ago, unless they're really engaged in what they're buying (e.g. the Radiohead experiment.).

James

I'd be very interested to see what folks have to say about the PWYW method at farmer's markets. An interesting intersection of two different (but tangentially related) topics.

Mike

A slight twist on the idea, but I often suggest to bartenders at bars I visit regularly to put in their own tip. They only take me up on it about 50% of the time but I think it has actually saved me money over the long run

Nancy

A little farm stand on a semi-rural road near me works on the "pay what you wish" honor system. No attendant, no prices, only produce and a cash box (locked and bolted to the side of the building).

I pay what I think is reasonable based on prices at other farm stands and farmer's markets. If I'm short a bit of money, I put in extra the next time.

The stand has been there for years so clearly it's working for this particular farmer. Not sure if it would work on a larger scale, though.

Mike Gibbs

My favorite curry stand at the Lau Pa Sat hawker center in downtown Singapore had a "pay what you wish" policy. It is vegetarian Indian food (and very good). I wonder if karma could be modeled using repeated game theory? Tit-for-tat?

I'll be back there in 2 weeks & will see if it's still operating w/ that policy.

rjs

as a tomato grower who has used several forms of this, the advantage from the sellers point of view at farmers markets may not be financial; its that one can move all of what one has before it goes bad....

i think this would apply to any persihables; ive seen big box stores throw away unsold plants in late june because it was the cheapest way of dealing with that unsold invenntory

AS

I have noticed a lot of price disparity between farmer markets in various areas of southern CA. Those in nicer neighborhoods have higher prices, but is often the same farmer who moves to a different location each day. Also I noticed if you go just before the market is set to close many will slash prices or throw in freebies in order to avoid repacking the product.

Nick O'Leary

This model is also not uncommon with community theater and other performances. In fact, the student theater group that I work with has found that its profits are higher when donations are accepted and admission is free. This may be partially because licensing companies charge fees based on the ticket prices that the theater licensing the show sets.

Mohit Bhushan

I don't know if Mike is referring to the Annalakshmi Indian vegetarian restaurant in Singapore. It is very much a 'Pay as you like' model. Its workforce is comprised of volunteers and surplus goes to charity. It is in a prime location operating for years now, so i guess it's working. I have heard that they have opened a new branch in Australia recently. So looks like it is flourishing.

adam berk

pay-what-you-wish peer to peer borrowing experiment
http://sandbox.gtaero.net/cal/