Price Discrimination and Fairness Concerns

33 Pages Posted: 6 Feb 2012

See all articles by Florian Englmaier

Florian Englmaier

Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Linda Gratz

E.CA Economics; Ludwig Maximilian University of Munich (LMU) - Munich Graduate School of Economics (MGSE)

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 5, 2012

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.

Keywords: price discrimination, reciprocal fairness, inequity aversion, experimental economics

JEL Classification: D11, D12, E3

Suggested Citation

Englmaier, Florian and Gratz, Linda and Reisinger, Markus, Price Discrimination and Fairness Concerns (February 5, 2012). Available at SSRN: https://ssrn.com/abstract=1999757 or http://dx.doi.org/10.2139/ssrn.1999757

Florian Englmaier

Department of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Linda Gratz (Contact Author)

E.CA Economics ( email )

Schlossplatz 1
Berlin, 10178
Germany
+49 30 21231 7087 (Phone)
+49 30 21231 7099 (Fax)

Ludwig Maximilian University of Munich (LMU) - Munich Graduate School of Economics (MGSE)

Kaulbachstrasse 45
M√ľnchen, 80539
Germany

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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