Privacy Is Precious: On the Attempt to Lift Anonymity on the Internet to Increase Revenue

• DOI: http://doi.org/10.1111/jems.12192
• Published date: 01 June 2017
• Date: 01 June 2017

Privacy Is Precious: On the Attempt to Lift

Anonymity on the Internet to Increase Revenue

TOBIAS REGNER

Friedrich Schiller University Jena

Jena

tobias.regner@uni-jena.de

GERHARD RIENER

D¨

usseldorf Institute for Competition Economics (DICE), Heinrich Heine Universit¨

at D¨

usseldorf

Universit¨

atsstraße 1

40225 D¨

usseldorf

Germany

riener@dice.hhu.de

We investigate the effect of a reduction of anonymity on consumers’ purchase decisions (whether

to buy, and if so how much to pay) at an online music store with Pay-What-You-Want (PWYW)-

like pricing and in an Internet experiment mimicking the real world situation. Revealing the

customer’s name, e-mail, and payment to the artist (seller) led to insignificantly higher payments,

although it drastically reduced the number of customers purchasing. Overall, the regime led to

a revenue loss of 25%. In the online experiment, revenue drops by 35%. These results suggest

that the positive effect of reduced anonymity, previously established for donation or public goods

contexts, does not extend to a consumption environment. Instead, the substantial opt-out of

customers is likely to be motivated by concerns about privacy.

1. Introduction

How to price what you want to sell has always been a major task. In contrast to con-

ventional uniform pricing recently emerging, Pay-What-You-Want (henceforth PWYW)

business models do not require the decision what price to set: customers choose by

themselves how much to pay. The band Radiohead, for instance, released their album

“In Rainbows” under a PWYW regime on their own web site and attracted hundreds

of thousands of paying customers. Although part of this success should be attributed

to the publicity Radiohead received for their pioneering efforts, Kim et al. (2009), Reg-

ner and Barria (2009), Gneezy et al. (2010), and Riener and Traxler (2012) show that

PWYW can indeed be a successful and sustainable business model. The continuing

success of the PWYW platform Humble Bundle—the bundles of indie video games reg-

ularly surpassed $1M in revenue—suggests that this type of payment regime is a viable

option especially for digital content.1Chao et al. (2015), Kahsay and Samahita (2015),

Isaac et al. (2015), and Mak et al. (2015) identify theoretical conditions under which

The authors are very grateful to John Buckman of Magnatune for providing them with the data. Further-

more, the authors thank VolkerBenndorf, Uri Gneezy, and Hans Theo Normann for valuable comments and

suggestions.

1. Digital content has negligible marginal costs of reproduction, but it can be very difficult to exclude

nonpayers from consuming it. Hence, the pricing of digital content received quite some attention in recent

years leading to developments of ideas on pricing regimes that may help to prevent the infringement of

property rights of digital content (see, e.g., Varian,2005, Domon and Yamazaki, 2004 or Cremer and Pestieau,

C2017 Wiley Periodicals, Inc.

Journal of Economics & Management Strategy, Volume26, Number 2, Summer 2017, 318–336

Anonymity on the Internet 319

a PWYW business model performs favorably in comparison to conventional uniform

pricing.

Although the task of setting the right price becomes superfluous under a PWYW

pricing scheme, the innovation brings along new questions that are relevant for business

success. What makes (at least some) people pay more than they have to in these circum-

stances? Underlying motivations for paying voluntarily have been identified recently.

Gneezy et al. (2012) argue that self-image motivations are the driving force behind pos-

itive payments at a restaurant, Schmidt et al. (2014) find support for fairness concerns

among buyers in an experimental product market with a PWYW option and Regner

(2015) finds that reciprocity is a determinant of generous payments at an online music

store. What else may affect the payment decision? Social-image concerns (B´

enabou and

Tirole, 2006; Ellingsen and Johannesson, 2008; Andreoni and Bernheim, 2009) could be

a possible motivation in a PWYW setting. Customers may not only pay what they want

but more than that in order to appear generous in frontof others. Triggering social-image

concerns may also be relatively easy,as publishing the payment comes at nearly no cost.

Hence, decreasing buyer’s anonymity may be a promising feature to increase PWYW

revenues.

Westudy an attempt to utilize a decrease in anonymity in order to increase revenue

and investigate its effect on payment behavior. We identify the effect by exploiting an

exogenous variation of the payment regime at Magnatune, an online music store with

PWYW-like pricing.2For a limited period, Magnatune deviated from their anonymous

payment interface and reduced the anonymity of customers by announcing that identity

(name plus e-mail) and payment of a customer will be transmitted to the artist of

the purchased music album. This was mentioned prominently during the payment

process. Our study evaluates the behavioral reactions and their consequences on average

payments and total revenue for the company.

The effect of a decrease in anonymity on people’s choices has been studied mainly

in contexts of public goods and charitable giving. In a seminal paper, Hoffman et al.

(1996) study the effect of social distance on giving, which started a series of experiments

about the role of anonymity in prosocial behavior. The central result of this literature

is that average donations in dictator games (respectively, contributions in public goods

games) would rise under less anonymity.These findings may be seen as an indication that

reduced anonymity also has a positive effect on voluntary payments for a consumed

product/service. However, customers could anticipate that they may be tempted to

pay more than they actually want to due to the social pressure and decide to avoid

the payment decision.3They may prefer to rather not buy at all, when they know

their anonymity will be lifted especially when alternative sellers are around. Hence,

although the social pressure argument predicts a positive effect at the intensive margin

2009). However, how to price digital content is still a puzzle, while ever more of it becomes available.

For an overview, see also Council (2000). Details about the Humble Bundle platform can be found under

http://www.humblebundle.com/(accessed January 2016).

2. At the time of our study, Magnatune used a PWYW-like business model selling music albums over

an Internet platform. Customers were free to choose how much they want to pay, as long as the price was

between $5 and $18. Magnatune recommended a price of $8.

3. This question of sorting out has been investigated recently in the context of charitable giving, see the

work of DellaVigna et al. (2012) and Andreoni et al. (forthcoming). These studies find that people avoid

interaction with a solicitor in response to social pressure (still, people who face social pressure donate more).

The focus of our study is on market interactions in which a buyer makes a payment and the seller delivers a

product or service. Hence, we investigate how sensitive potential consumers react to a reductionof anonymity

in terms of purchasing at all and (voluntary) payment.