Personalized pricing and price fairness

Timothy J. Richards, Jura Liaukonyte and Nadia Streletskaya

International Journal of Industrial Organization, 2016, vol. 44, issue C, 138-153

Abstract: Mobile web technology enables discriminatory, or personalized, pricing for many more consumer good categories than has traditionally been the case. Setting prices according to individual valuations, however, generates adverse consumer reaction unless consumers are invited to participate in the price-formation process. Consumer perceptions of price fairness are key to the sustainability of any discriminatory pricing regime. Perceptions of price fairness, in turn, are hypothesized to be shaped by “self-interested inequity aversion” in which prices tend to be regarded as unfair, and purchase probabilities fall, if others are perceived to pay a lower price, while prices tend to be regarded as more fair, and consumers more likely to purchase, if inequity is in the buyers favor. Our experimental data also shows that the implications of inequity aversion for sellers can be at least partially reversed if consumers are allowed to participate in the price-formation process by negotiating the price they pay. The primary implication of our findings is that, in order to be viable, any system of discriminatory pricing for consumer goods should invite consumers to have a stake in the price they pay. Such participatory pricing may provide one way out of the current trap of Hi–Lo, or promotional, pricing that neither retailers nor manufacturers regard as sustainable.

Keywords: Experimental economics; Fairness; Inequity aversion; Price discrimination; Retail pricing (search for similar items in EconPapers)
JEL-codes: D43 L13 M31 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:44:y:2016:i:c:p:138-153

DOI: 10.1016/j.ijindorg.2015.11.004

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