Consumer Fairness Concerns and Price Discrimination of Two-Sided Platforms

This paper studies how consumers’ concerns about fairness interact with third-degreeprice discrimination of a two-sided monopoly platform. We show that the presenceof fairness concerns creates a negative demand externality from low-willingness-to-payto high-willingness-to-pay consumers, that is, charging less to the former reduces thelatter’s demand. With this novel externality, price-discriminating among consumerstriggers fairness concerns, which lowers consumer-side demand and ultimately restrictsthe platform’s profit exploitation from the seller side. Hence, a platform whose profitpotential from sellers is larger would take consumers’ fairness concerns more seriouslyand price-discriminate less. The results can explain why some major online platforms—despite the huge profit potential of targeting prices—shy away from price discriminationin response to consumers’ fairness concerns, while others care little about unfairnesscomplaints when price-discriminating among consumers.