The Benefit of Uniform Price for Branded Variants

Posted: 13 Nov 2013

Abstract

The extensive adoption of uniform pricing for branded variants is a puzzling phenomenon, considering that firms may improve profitability through price discrimination. In this paper, we incorporate consumers' concerns of peer-induced price fairness into a model of price competition and show that a 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 an 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 and enhance their profits.

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

Suggested Citation

Chen, Yuxin and Cui, Tony Haitao, The Benefit of Uniform Price for Branded Variants. Marketing Science, Vol. 32, No. 1, 2013; pp. 36-50; DOI: 10.1287/mksc.1120.0751. Available at SSRN: https://ssrn.com/abstract=2328137

Yuxin Chen (Contact Author)

Northwestern University - Department of Marketing ( email )

Kellogg School of Management
2001 Sheridan Rd.
Evanston, IL 60208
United States

Tony Haitao Cui

University of Minnesota - Twin Cities ( email )

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

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