Behavioral Pricing and Price Fairness

Pricing is a fundamental aspect of the marketplace, and traditional economic models typically assume that firms set prices to maximize their profit. However, consumer reactions to pricing are driven by psychological, as well as economic, considerations. Research has demonstrated, for example, that consumers may not react to small price differences, leading to “kinks” in the classic demand curves (e.g., Monroe 1971). As another example, the manner in which economically equivalent prices are presented affects consumer reactions, yielding some of the well-known framing effects (e.g., Thaler 1985). Additionally, prices involve numerical information and many consumers make errors in calculating prices, which could further bias price information processing (e.g., Chen and Sun 2018). The voluminous work that aims at developing descriptive (versus prescriptive) models of consumer behaviors has germinated into the field of behavioral pricing that focuses on examinations of how consumers deal with price information in the marketplace…