Monday, April 23, 2012
Posted by D. Daniel Sokol
Florian Englmaier, University of Wurzburg - Institute of Economics and Social Sciences, Linda Gratz, Max Planck Institute for Intellectual Property and Competition Law, Ludwig Maximilians University of Munich - Munich Graduate School of Economics (MGSE) and Markus Reisinger, WHU - Otto Beisheim Graduate School of Management have written on Price Discrimination and Fairness Concerns.
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.