Marketing Science, 2013.
37 Pages Posted: 15 Jun 2009 Last revised: 18 Apr 2013
Date Written: August 31, 2012
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: 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