Sirui Li

Many consumers suffer psychological disutility from relative deprivation when they see a lower price offered to their peers for the same good. Such aversion to price discrimination (PD) can cause non-patronage even when the offered price is below consumers’ reserve prices. Sellers thus have an incentive to prevent such behavior. While strategies that make PD undetectable have attracted enough scrutiny, it remains unclear whether PD-averse behavior can be manipulated when price differences are fully observable. This paper explores this question via two series of laboratory experiments. They focus on manipulation strategies targeting the two key aspects of perceived relative deprivation under PD: the price difference and the price distribution. Our Study I examined the effect of introducing a higher external reference value for evaluating disadvantageous price differences. The results show that this price-framing strategy can curb PD-averse behavior, but only for intermediate price differences. When the price difference is sufficiently large or small, PD-averse behavior is not very sensitive to changes in price display. Our Study II examined the effect of varying the share of high-price offers among all observed price offers while holding the disadvantageous price difference fixed. We find that showing the high-price offer more widely shared can discourage PD-averse behavior, but this discouraging effect is relatively weak if high-price offers account for a minority of all observed price offers. In general, the fairness constraint on PD is found vulnerable to simple costless manipulations.

This paper studies how consumers’ concerns about fairness interact with third-degree price discrimination of a two-sided monopoly platform. We show that the presence of fairness concerns creates a negative demand externality from low-willingness-to-pay to high-willingness-to-pay consumers, that is, charging less to the former reduces the latter’s demand. With this novel externality, price-discriminating among consumers triggers fairness concerns, which lowers consumer-side demand and ultimately restricts the platform’s profit exploitation from the seller side. Hence, a platform whose profit potential from sellers is larger would take consumers’ fairness concerns more seriously and price-discriminate less. The results can explain why some major online platforms—despite the huge profit potential of targeting prices—shy away from price discrimination in response to consumers’ fairness concerns, while others care little about unfairness complaints when price-discriminating among consumers.