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.

Original languageEnglish (US)
Pages (from-to)138-153
Number of pages16
JournalInternational Journal of Industrial Organization
Volume44
DOIs
StatePublished - Jan 1 2016

Fingerprint

Costs
Sustainable development
Price fairness
Pricing
Inequity aversion
Purchase
Price formation
Discriminatory pricing
Web technology
Consumer perceptions
Price setting
Negotiating
Buyers
Sustainability
Trap
Seller
Inequity
Retailers

Keywords

  • Experimental economics
  • Fairness
  • Inequity aversion
  • Price discrimination
  • Retail pricing

ASJC Scopus subject areas

  • Industrial and Manufacturing Engineering
  • Industrial relations
  • Strategy and Management
  • Aerospace Engineering

Cite this

Personalized pricing and price fairness. / Richards, Timothy; Liaukonyte, Jura; Streletskaya, Nadia A.

In: International Journal of Industrial Organization, Vol. 44, 01.01.2016, p. 138-153.

Research output: Contribution to journalArticle

Richards, Timothy ; Liaukonyte, Jura ; Streletskaya, Nadia A. / Personalized pricing and price fairness. In: International Journal of Industrial Organization. 2016 ; Vol. 44. pp. 138-153.
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