Download this Paper Open PDF in Browser

The Benefit of Uniform Price for Branded Variants

Marketing Science, 2013.

37 Pages Posted: 15 Jun 2009 Last revised: 18 Apr 2013

Yuxin Chen

New York University (NYU) - Department of Marketing

Tony Haitao Cui

University of Minnesota - Twin Cities

Date Written: August 31, 2012

Abstract

The extensive adoption of uniform pricing for branded variants is a puzzling phenomenon, considering that firms may improve profitability through price discrimination. In the paper, we incorporate consumers' concerns of peer-induced price fairness into a model of price competition and show that uniform price for branded variants may emerge in equilibrium. Interestingly, we find that uniform pricing induced by consumers’ concerns of fairness can actually help mitigate price competition and hence increase firms’ profits if the demand of the product category is expandable. Furthermore, an individual firm may not have incentive to unilaterally mitigate consumers’ concerns of price fairness to its own branded variants, which suggests the long-run sustainability of the uniform pricing strategy. As a result, fairness concerns from consumers provide a natural mechanism for firms to commit to uniform pricing which enhances their profits.

Keywords: pricing, peer-induced fairness, price fairness, behavioral economics

JEL Classification: D03, D43, L11, L13, L22, M31

Suggested Citation

Chen, Yuxin and Cui, Tony Haitao, The Benefit of Uniform Price for Branded Variants (August 31, 2012). Marketing Science, 2013.. Available at SSRN: https://ssrn.com/abstract=1419182 or http://dx.doi.org/10.2139/ssrn.1419182

Yuxin Chen

New York University (NYU) - Department of Marketing ( email )

Henry Kaufman Ctr
44 W 4 St.
New York, NY
United States
212-995-0511 (Phone)
212-995-4006 (Fax)

Tony Haitao Cui (Contact Author)

University of Minnesota - Twin Cities ( email )

321 19th Ave S
Suite 3-150
Minneapolis, MN 55455
United States

Paper statistics

Downloads
427
Rank
55,913
Abstract Views
2,498