The benefit of uniform price for branded variants

Yuxin Chen, Tony H Cui

Research output: Contribution to journalArticlepeer-review

32 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)36-50
Number of pages15
JournalMarketing Science
Volume32
Issue number1
DOIs
StatePublished - Jan 1 2013

Keywords

  • Behavioral economics
  • Peer-induced fairness
  • Price fairness
  • Pricing

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