"Do Consumers Pay Voluntarily? The Case of Online Music"

Tobias Regner and Javier Barria

The paper analyses the payment behaviour of customers of the online music
label Magnatune. Customers may pay what they want for albums, as long as
the payment is within a given price range ($5-$18). Magnatune’s
comprehensive pre-purchase access facilitates music discovery and allows
an informed buying decision setting it apart from conventional online music
stores.
On average customers pay $8.20, far more than the minimum of $5 and
even higher than the recommended price of $8. We analyse the relationship
between artists/labels and customers in online music. We consider social
preferences, in particular concerns for reciprocity. The resulting sequential
reciprocity equilibrium corresponds to the observed pattern of behaviour.
We conclude that Magnatune’s open contracts design can encourage people
to make voluntary payments and may be a viable business option.

Do Consumers Pay Voluntarily? The Case of Online Music