Price Discrimination and Fairness Concerns

Englmaier, Florian; Gratz, Linda and Reisinger, Markus (February 2012): Price Discrimination and Fairness Concerns. Discussion Papers in Economics 2012-7

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.

• Item Type: Paper
• Keywords: price discrimination, reciprocal fairness, inequity aversion, experimental economics
• Faculties: Economics; Economics > Munich Discussion Papers in Economics; Economics > Chairs > Chair of Dynamic Economic Theory (closed)
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: D11, D12, E3
• Language: English

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