Journal article
The Price of Power: How Firm’s Market Power Affects Perceived Fairness of Price Increases
Journal of retailing, Vol.96(2), pp.220-234
06/01/2020
DOI: 10.1016/j.jretai.2019.09.004
Abstract
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•Consumers judge cost-based price increases by firms with higher market power as less fair.•Unfairness perceptions arise because price increases by firms with high market power are seen as controllable and exploitive.•Increasing prices to exploit demand is seen as unfair regardless of market power.•Price increases clearly beyond the firm’s control are seen as fair regardless of market power.
How does market power affect consumer perceptions and purchase behavior? In the theoretically and pragmatically important context of price increases, we theorize that (i) consumer price fairness perceptions decline with market power when a price increase is due to costs; and (ii) this fairness difference arises due to greater perceptions of controllability and, in turn, exploitation by firms with higher market power. Consistent with our theorizing, we further argue that market power does not affect fairness (iii) when prices rise due to demand (which is perceived as equally exploitative and unfair regardless of firm power) or (iv) when price increases are clearly beyond the firm’s control (and perceived as equally fair for firms with high and low market power). We provide empirical support for these predictions in a series of behavioral experiments combined with an analysis of retail scanner data. Together, our findings shed light on how market power and pricing actions jointly drive consumer perceptions of unfairness, with implications for firms’ pricing strategies, competition in the retail marketplace, and the principle of dual entitlement as a community standard of fairness in pricing.
Details
- Title: Subtitle
- The Price of Power: How Firm’s Market Power Affects Perceived Fairness of Price Increases
- Creators
- Zhi Lu - University of VictoriaLisa E. Bolton - Pennsylvania State UniversitySharon Ng - Nanyang Technological UniversityHaipeng (Allan) Chen - University of Kentucky
- Resource Type
- Journal article
- Publication Details
- Journal of retailing, Vol.96(2), pp.220-234
- Publisher
- Elsevier Inc
- DOI
- 10.1016/j.jretai.2019.09.004
- ISSN
- 0022-4359
- eISSN
- 1873-3271
- Grant note
- Gustavson School of Business Smeal College of Business
- Language
- English
- Date published
- 06/01/2020
- Academic Unit
- Marketing
- Record Identifier
- 9984618527902771
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