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Price Discrimination and Fairness Concerns

Author

Listed:
  • Englmaier, Florian
  • Gratz, Linda
  • Reisinger, Markus

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.

Suggested Citation

  • Englmaier, Florian & Gratz, Linda & Reisinger, Markus, 2012. "Price Discrimination and Fairness Concerns," Discussion Papers in Economics 12735, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:12735
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    File URL: https://epub.ub.uni-muenchen.de/12735/1/Englmaier_Gratz_Reisinger-Price_Discrimination_and_Fairness_Concerns.pdf
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    References listed on IDEAS

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    1. Shor, Mikhael & Oliver, Richard L., 2006. "Price discrimination through online couponing: Impact on likelihood of purchase and profitability," Journal of Economic Psychology, Elsevier, vol. 27(3), pages 423-440, June.
    2. Urbany, Joel E & Bearden, William O & Weilbaker, Dan C, 1988. " The Effect of Plausible and Exaggerated Reference Prices on Consumer Perceptions and Price Search," Journal of Consumer Research, Oxford University Press, vol. 15(1), pages 95-110, June.
    3. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    4. Phillip Leslie, 2004. "Price Discrimination in Broadway Theater," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 520-541, Autumn.
    5. Janiszewski, Chris & Lichtenstein, Donald R, 1999. " A Range Theory Account of Price Perception," Journal of Consumer Research, Oxford University Press, vol. 25(4), pages 353-368, March.
    6. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
    7. Aviv Nevo & Catherine Wolfram, 2002. "Why Do Manufacturers Issue Coupons? An Empirical Analysis of Breakfast Cereals," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 319-339, Summer.
    8. Frank Verboven, 1996. "International Price Discrimination in the European Car Market," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 240-268, Summer.
    9. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
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    Citations

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    Cited by:

    1. Hendrik Sonnabend, 2016. "Fairness constraints on profit-seeking: evidence from the German club concert industry," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 40(4), pages 529-545, November.
    2. Tomohisa Okada, 2014. "Third-degree Price Discrimination with Fairness-concerned Consumers," Manchester School, University of Manchester, vol. 82(6), pages 701-715, December.

    More about this item

    Keywords

    price discrimination; reciprocal fairness; inequity aversion; experimental economics;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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