Price Discrimination and Fairness Concerns

Florian Englmaier, Linda Gratz and Markus Reisinger

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: We analyze the profitability of third degree price discrimination under consideration of consumers' fairness concerns within an experiment and explain the results within a theoretical framework. We find that with an increase in the price differential negative reciprocal reactions by disadvantaged consumers become stronger compared to positive reciprocal reactions by advantaged consumers. Consequently, the profit maximizing price differential lies below the one predicted to be optimal by standard theory. Further, profitability increases when consumers who are regarded as poorer are charged lower prices compared to when the wealth of the different consumer groups is unknown.

Keywords: price discrimination; reciprocal fairness; inequity aversion; experimental economics (search for similar items in EconPapers)
JEL-codes: D11 D12 E3 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-cbe, nep-com, nep-exp, nep-ind and nep-mkt
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenec:12735

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