Economist readings
1. It pays to give
Allowing consumers to set their own prices can be good for business; even better if the firms give some of it to charity http://www.economist.com/whichmba/it-pays-to-give?fsrc=nlw|mgt|01-12-2011|management_thinking [pic]IN OCTOBER 2007 Radiohead, a British rock group, released its first album in four years, “In Rainbows”, as a direct digital download. The move drew a fair bit of attention (including from this newspaper) not only because it represented a technological thumb in the eye to the traditional music industry, but also because the band allowed listeners to pay whatever they wished for it. Some 60% of those who seized the opportunity paid nothing at all, but the band seemed pleased with the result; one estimate had it earning nearly $3m from the experiment.
One group outside the music industry taking an interest was a trio of professors then at the Rady School of Management at the University of California, San Diego: Ayelet Gneezy, Uri Gneezy and Leif Nelson (who is now at the Haas School of Business at the University of California, Berkeley). Inspired, they designed a series of experiments to gauge whether pay-what-you-want pricing would work for other businesses. Their most recent experiment, co-authored with Amber Brown of Disney Research and published in Science, also stirred in a new element: would it make any difference if firms donated some of the pay-what-you-want fee to charity?
The authors set up their pricing experiment at the exit of a roller-coaster ride at a large amusement park. Riders were offered a photograph of themselves, snapped mid-coast. The usual price was $12.95, but on one day riders were told they could pay what they wished, including taking the photo for free. A second group was charged the full price but told that half the money would go to a well-regarded health charity. Yet a third group