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

The market for mobile apps is expanding quickly. Customer adoption for these apps is determined positively by app utility and social information as well as negatively by the perceived privacy risk associated with disclosing sensitive private information such as customer identity and geographical location. Because of the social nature of many of these apps, and the characteristics of the primary user base (those ages 18-29), we examine how the pay-what-you-want pricing model—which has been successful in certain instances in the music industry—would work in the market for mobile apps which have a similar price point of one to two dollars (on average). Using a theoretical model based on social information and reference pricing and an empirical experiment involving 1079 participants, we find that privacy assurance is the largest contributing factor to a customer’s willingness-to-pay for mobile apps while social information and reference pricing play much smaller roles.