dynamic pricing and consumer fairness perceptions

Journal of Consumer Research, Inc.

Dynamic Pricing and Consumer Fairness PerceptionsAuthor(s): Kelly L. Haws and William O. BeardenSource: Journal of Consumer Research, Vol. 33, No. 3 (December 2006), pp. 304-311Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/10.1086/508435 .

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� 2006 by JOURNAL OF CONSUMER RESEARCH, Inc.● Vol. 33 ● December 2006All rights reserved. 0093-5301/2006/3303-0002$10.00

Dynamic Pricing and Consumer FairnessPerceptions

KELLY L. HAWSWILLIAM O. BEARDEN*

Dynamic pricing practices by sellers in response to segment and individual-leveldifferences have been made more feasible as internet buyer behavior increases.While benefits from these pricing practices can accrue to sellers and buyers, thepotential for (un)fairness perceptions to mitigate these advantages is important. Inan effort to investigate these issues, this article reports the results of three studiesthat examine the effects of seller-, consumer-, time-, and auction-based price dif-ferences on perceived price fairness and purchase satisfaction. The findings un-derscore the potential negative effects associated with price differences from dy-namic pricing practices.

With nearly constant attention on the prices of gas,pharmaceuticals, and other products, perceived price

fairness is a phenomenon deserving attention from consumerresearchers. Toward that objective, several researchers haverecently addressed price fairness (e.g., Bolton, Warlop, andAlba 2003; Campbell 1999; Grewal, Hardesty, and Iyer2004; Vaidyanathan and Aggarwal 2003; Xia, Monroe, andCox 2004). Questions remain regarding the contexts thataffect whether or not consumers perceive prices as fair. An-other issue that is increasingly being investigated is dynamicpricing. Dynamic pricing, often referred to in economicterms as individual-level price discrimination, has becomemuch more common with the increased prevalence of In-ternet marketing. It is important to note that little is knownabout the impact of dynamic pricing strategies on consumerperceptions of price fairness.

The present article seeks to address the circumstances thataffect judgments about price fairness in varying dynamicpricing environments based on consumer, time, and price-setter differences. First, price fairness and dynamic pricingare discussed within the context of the present research.Next, comparability (Xia and Monroe 2004) and its rela-tionship to the representativeness heuristic (Tversky and

*Kelly L. Haws is a doctoral candidate in marketing and William O.Bearden is the Bank of America Chair in Marketing at the Moore Schoolof Business, University of South Carolina, Columbia, SC 29208 ([email protected] and [email protected]). The authors acknowl-edge the helpful input of the associate editors and reviewers. In addition,the authors thank Tim Silk and Cait Poynor for their comments on previousdrafts.

Dawn Iacobucci served as editor and Eugene Anderson served as associateeditor for this article.

Electronically published October 9, 2006

Kahneman 1974) and fairness heuristic theory (Van den Boset al. 1997) are used to develop a general framework re-garding consumer perceived price fairness judgments. Hy-potheses based on this review are then tested in a series ofthree studies. Finally, ideas for future research are proposed.

THEORETICAL FRAMEWORK ANDHYPOTHESES

Pricing Concepts and Relevant Heuristics

In keeping with the current conceptualization in the lit-erature (Xia et al. 2004), price fairness refers to a perceivedfairness judgment by a buyer of a seller’s prices. Althoughfairness is a difficult concept to define, the perception ofprice fairness is part of a broader judgment of the overallmerits of a deal. Transaction value has been found to havea direct impact on overall acquisition value (Grewal, Mon-roe, and Krishnan 1998), thereby emphasizing the impor-tance of perceived fairness. Dual entitlement suggests that,in an economic transaction, the buyer is entitled to a fairprice and the seller is entitled to a fair profit. However, ifa conflict exists, the seller’s entitlement takes precedence(Vaidyanathan and Aggarwal 2003).

The approach taken by Bolton et al. (2003) required studyparticipants to consider the various costs involved with pro-ducing and selling products. Across several studies, Boltonet al. (2003) found that profit estimates were both high andinflexible and that consumers often underestimate the impactof inflation. Additionally, consumers did not consider manycosts, and not all cost increases were seen as equally fair.Moreover, motives, company reputation, and previous cus-tomer satisfaction have all been shown to affect consumers’



DYNAMIC PRICING AND FAIRNESS PERCEPTIONS 305

FIGURE 1

TRANSACTION CHARACTERISTICS AND CONSUMERJUDGMENTS OF PRICE FAIRNESS

perceptions of the fairness of price increases (Campbell1999; Homburg, Hoyer, and Koschate 2005).

Although the concept of dynamic pricing has existed forsome time, it has recently reemerged as a particularly viablestrategy due to advancing technology and the increasingprevalence of Internet retailing (Jayaraman and Baker 2003;Kannan and Kopalle 2001). Dynamic pricing is defined hereas a strategy in which prices vary over time, consumers,and/or circumstances. Elmaghraby and Keskinocak (2003)distinguish between two dynamic pricing models: price-posted mechanisms and price-discovery mechanisms. Withprice-posted mechanisms, frequent price changes are offeredas “take-it-or-leave-it” prices, that is, the company is stillin charge of setting the price. With price-discovery mech-anisms, such as eBay, Priceline, or similar negotiated ap-proaches, consumers have input into setting the final price.Consistent with the recommendations of Bolton et al.(2003), the present research investigates the effects of var-ious dynamic pricing contexts and considers additionaltransaction characteristics. The proposed framework de-picted in figure 1 incorporates and extends those of Boltonet al. (2003) and Xia et al. (2004) and includes representativetransaction characteristics as antecedents and price-level dif-ferences as a moderator of price fairness judgments. Theframework also depicts fairness as a predictor of the effectsof transaction characteristics on purchase satisfaction.

The representativeness heuristic and fairness heuristic the-ories are relevant to understanding how consumers makeprice fairness judgments. Briefly, fairness heuristic theory,based heavily on procedural justice and relational authoritytheories, provides a psychological perspective regardinghow and why people form judgments of fairness (Van denBos et al. 1997). Fairness heuristic theory suggests thatfairness has the capacity to address the fundamental threatof exploitation that individuals face in a wide variety ofrelationships (Lind 2002). Regarding the current research,an important aspect of fairness heuristic theory is the attemptto examine conditions under which fairness is important(Van den Bos et al. 1997).

Representative Transaction Characteristics

A commonly utilized heuristic, studied in detail by Tver-sky and Kahneman (1974), is representativeness. A con-sumer using the representativeness heuristic evaluates theprobability of an uncertain event by its degree of similarityto essential properties known to exist in that category (Tver-sky and Kahneman 1974). Within the current research, atransaction may be deemed fair or unfair based on the com-parability (and therefore representativeness) of essentialtransaction characteristics including the product, terms ofsale, time, and seller (Xia et al. 2004). The characteristicsconsidered in the present studies include different consum-ers, times, sellers, and price setters. Previous research hasshown that, although consumers typically expect a particularretailer to have consistent prices within short time periods,price promotions are common (Blattberg, Briesch, and Fox1995; Grewal and Marmorstein 1994), and these price offers

establish a norm that would be considered in a represen-tativeness comparison. In the present research, differentseller is used primarily as a comparison condition, with thefocus remaining on consumer, time, and price-setter differ-ences.

Other Consumers. Consumers often have informationabout the prices paid by others, especially with the easyaccessibility of information-sharing mechanisms both on-line (e.g., chat rooms, blogs, and message boards) and off-line (e.g., word of mouth) (Cox 2001). Fairness heuristicresearch suggests that individuals pay more attention to in-formation about others’ outcomes than to other pertinentinformation (e.g., procedural fairness) when making fairnessjudgments (Van den Bos et al. 1997). Moreover, social com-parisons affect price fairness judgments (Cox 2001). Theconcept of equity, which underlies fairness, suggests thatgenerally consumers should pay the same price for the sameproduct (Darke and Dahl 2003). Without explanation, con-sumers will perceive a price as unfair when it differs fromthe price paid by other consumers. Even when consumersknow that differential prices are based on a buyer’s iden-tification (i.e., as a new customer), they regard consumer-based price differences as unfair (Grewal et al. 2004). Xiaand Monroe (2004) propose that comparisons with otherconsumers will have a larger effect on perceived price fair-ness than comparisons with other sellers or self-references.The following hypothesis relates to the effects of consumerdifferences:

H1: Higher prices paid relative to other consumers willtrigger stronger negative fairness judgments thanseller, time, and/or price-setter differences.



306 JOURNAL OF CONSUMER RESEARCH

Price Setter. The price setter is important because ofthe increased use of dynamic pricing and specifically price-discovery mechanisms. Price-setter transaction characteris-tics may well affect fairness judgments since attributions offairness are likely to depend on the level of control theconsumer has regarding price determination (Weiner 1985).Fairness heuristic theory also provides support for the ac-ceptance of “pricing rules” through the premise that onceconsumers have established fairness judgments, those judg-ments serve as heuristics for evaluating new experiences(Van den Bos et al. 1997). If consumers judge a particularpricing rule as fair, subsequent transactions using similarrules will also be perceived as fair. In particular, consumerswho participate in price determination through bidding and/or negotiating are more likely to perceive prices as fair. Thisassertion is consistent with findings that support attribution-theory effects associated with locus and controllability (Wei-ner 1985). When consumers participate in setting the price,the onus is more directly on themselves to ensure priceacceptability and they are more likely to make internal at-tributions regarding the price determination. Therefore, con-sumers are less likely to perceive a price as unfair, even ifevidence exists to the contrary, when they are involved inthe price-setting process. Building on these theoretical ex-planations, hypotheses related to both the overall and therelative importance of the price-setter characteristic are pro-posed:

H2a: Consumers will perceive pricesdeterminedthroughbidding as more fair than prices set by the re-tailer.

H2b: With price-setter differences, higher prices paidrelative to others will trigger weaker negativefairness judgments than seller, time, and/or con-sumer differences.

Time. As time varies, the expectation of prices remain-ing constant should be relaxed, although consumers havebeen shown to insufficiently adjust price perceptions forinflation and often look back at previous prices paid in mak-ing fairness judgments (Bolton et al. 2003). Overall, con-sumers are accustomed to high-low strategies that vary re-tailers’ prices periodically, but they are less accustomed toprices that vary within very short periods of time (e.g.,within the same day). Unlike previous research, the currentresearch investigates time differences that are both tempo-rally close and temporally distant. Price discrepancies underclose temporal proximity should be more salient and influ-ential than price discrepancies spaced over time. Temporalconstrual theory suggests that events that are temporallyproximal are viewed in more concrete terms, while eventsthat are temporally distant are viewed in more abstract terms(Liberman and Trope 1998). As such, price discrepanciesunder close temporal proximity should be more salient andinfluential than price discrepancies spaced over time. Con-sumers will likely see temporally proximal time-based pricechanges as unfair. Therefore:

H3: Consumers will perceive temporally proximal pricedifferences as more unfair than temporally distantprice differences; however, this effect will dissi-pate over time.

STUDY 1: COMPARING REACTIONSACROSS PRICING CONTEXTS

Study 1 was designed to provide initial tests of hypotheses1 and 2b. Study 2 directly addresses the issue of price-discovery versus price-posted mechanisms and, as such, in-vestigates hypothesis 2a. Study 3 was designed to investigatehypothesis 3 relating to temporal price differences and con-sumers’ sensitivity to various time differentials.

Method and Dependent Variables

A 3 (price level)# 4 (purchase situation) factorial designwith price and purchase situation manipulated between studyparticipants was employed. Data were collected from 292undergraduate students as part of an in-class exercise inwhich individuals participated on a voluntary basis for mod-est course credit. Cell sizes ranged from 22 to 26. Thescenarios involved the purchase of a DVD player at a priceof $100, which was based on a series of pretest results. Thethree price levels include a comparison price 20% higher,20% lower, and equal to the price paid by the target con-sumer (i.e., 20%, as recommended by Blattberg et al. 1995).The four purchase situations reflect contexts associated withthe factors discussed above (i.e., differences associated withseller, consumer, time, and price setter) and are included inthe appendix.

Prior to collecting scaled responses, open-ended thoughtdata were collected in an effort to investigate the processespreceding fairness and purchase satisfaction judgments andthe extent to which consumers actually have thoughts re-garding the reasons for price differences and/or the motivesof sellers in offering varying prices and the effects of thesethoughts on subsequent outcomes. After the thought-elici-tation task, participants were again provided the purchase-situation description and asked to respond to scaled depen-dent variable measures of perceived price fairness andpurchase satisfaction. Fairness and satisfaction have beenshown to be related but conceptually distinct constructs (Or-donez, Connolly, and Coughlan 2000). Participants wereasked to evaluate perceived fairness by responding from 1(strongly disagree) to 7 (strongly agree) using nine state-ments employed by Darke and Dahl (2003) and Xia andMonroe (2004). These measures were averaged to form anoverall perceived price fairness measure ( ). Partic-a p .93ipants also evaluated satisfaction with their purchase usingthe four 11-point bipolar items used by Darke and Dahl(2003). The items were anchored by the following bipolaradjective pairs ( ): dissatisfied/satisfied, unhappy/a p .96happy, displeased/pleased, and disappointed/delighted. Thecorrelation between the dependent variable measures was0.74. A series of confirmatory factor analyses was employed




to investigate the discriminant and construct validity of thedependent variables (Gerbing and Anderson 1988). Theseprocedures provided evidence of the discrimination betweenfairness and satisfaction and were used in all three studiesto support the reliability and validity of the dependent mea-sures.

Results

Tests of Hypotheses. Examination of 3# 4 ANOVAtests for each of the dependent variables revealed a consis-tent pattern in that both main effects were significant, alongwith a marginally significant interaction for perceived fair-ness ( , ) and significant interaction for sat-F p 2.01 p p .06isfaction ( , ). Examination of just the lowF p 2.36 p ! .05($80) and same ($100) condition also revealed significantmain effects and significant interactions for fairness (F p

, ) and satisfaction ( , ). There-3.69 p ! .05 F p 4.01 p ! .01fore, price level and purchase context interact to affect bothfairness and satisfaction. The mean scores are depicted intable 1.

To test the effects predicted in hypotheses 1 and 2b, in-dependent mean comparisons were performed across thevarying transaction contexts for the lower comparison priceconditions. In this analysis, the responses for the differentconsumer contexts were tested against the responses of theremaining study participants pooled across the other threescenarios (i.e., seller, time, and auction). These analyses re-vealed that the mean scores were significantly lower (p !

), as predicted for perceived price fairness and purchase.05satisfaction. In tests of hypothesis 2b, the mean responses forthe auction scenario were tested against the responses of theremaining study participants pooled across the seller, con-sumer, and time-difference conditions. These analyses re-vealed that the mean scores for the auction scenario weresignificantly higher ( ) for both perceived price fairnessp ! .01and purchase satisfaction. In summary, then, these resultssupport the predicted relative ordering of the various trans-action characteristics.

Cognitive Responses. The cognitive-response dataprovided an opportunity to ascertain how often and underwhat circumstances consumers spontaneously make judg-ments about the fairness of prices. Two judges workingindependently coded the open-ended thoughts. Two thought-category schemas were employed: (1) thoughts categorizedas related to fairness, deal focus, or other, and (2) thoughtscategorized as positive, negative, or neutral. A total of 880thoughts were recorded across the 292 study 1 participants.The percent agreement between the two judges was 93%,and differences in coding were resolved by subsequentdiscussion.

A series of one-way ANOVA tests was used to examinedifferences in the thought content across the four dynamicprice contexts. Regarding the purchase-situation differences,and following overall significantF-values across the twosets of four means for fairness and satisfaction, significantpairwise contrasts ( ) were observed in cognitive re-p ! .05

sponses in terms of the total number of fairness thoughts aswell as negative thoughts. In both instances, the highestnumber of fairness thoughts and negative thoughts occurredfor situations in which other consumers paid different pricesin contrast to both seller- and time-based price differences.Pooled across scenario and price conditions, correlationsbetween the number of positive and negative thoughts withthe perceived price fairness measure were 0.44 ( )p ! .01and�0.50 ( ), respectively. These results indicate thatp ! .01cognitions associated with both the dynamic price contextsdescribed in the scenarios and the price comparison differ-ences do precede price fairness judgments as expected (Bol-ton et al. 2003). In addition, modest correlations betweenthe number of fairness thoughts ( , ) andr p �0.13 p ! .05the number of deal-related thoughts ( , ) andr p 0.20 p ! .01the scaled perceived price fairness variable were observed.

Overall, the cognitive response data showed that approx-imately 10% of the thoughts recorded by participants wererelated to fairness, representing 23% of the participants over-all. Another interesting finding was that costs were onlymentioned in two out of the 880 thoughts, suggesting lowspontaneous consideration of firm costs even though costshave been posited to be one of the primary determinants ofprice fairness perceptions.

STUDY 2: EFFECTS OF PRICE-SETTINGMECHANISM

A 3 (price level)# 2 (pricing mechanism) between-sub-jects factorial design was employed with 129 undergraduatestudents in a laboratory setting. A different product—boxedsets of television program DVDs—was used as the stimulusin descriptions similar to those used in study 1. Price levelswere identical to those used in study 1. The experimentalstimuli reflected that the pricing of the product involvedeither a price-posted (asked price) or a price-discovery (bidprice) mechanism. Participants were exposed to both theprice they paid and an alternative price encountered at nearlythe same time. The dependent variable measures were iden-tical to those used in study 1, with coefficient alpha estimatesof 0.89 and 0.97 for the measures of perceived fairness andpurchase satisfaction, respectively.

Overall, and as shown in the first two columns of table2, the results demonstrate that consumers are more willingto accept prices that they themselves played a role in setting.For the 2# 3 ANOVA, main effects were found for bothprice ( , ) and pricing mechanism (F p 11.61 p ! .01 F p

, ). The two-way interaction was not significant10.01 p ! .01( , ). Focusing on just the lower- and same-F p 1.07 p p .35price conditions, both main effects are still significant, andthe two-way interaction is nonsignificant. Most interesting,however, was the impact of the two pricing mechanisms atspecific price levels. One-way ANOVAs showed that bidprices were perceived as more fair than asked prices bothwhen the customer paid more or the same as the comparisonprice: higher ($80), , ; same ($100),F p 9.74 p ! .01 F p

, . In contrast, when the consumer received a4.74 p ! .05




TABLE 1

FAIRNESS AND SATISFACTION MEAN SCORES AND STANDARD DEVIATIONS: STUDY 1

Dependent variable andprice condition

Different seller Different consumer Different time Different auction

Mean SD Mean SD Mean SD Mean SD

Perceived price fairness:Low ($80) 4.04 1.19 3.08 1.10 3.86 1.27 4.64 1.05Same ($100) 5.33 1.32 5.03 1.03 5.43 1.13 5.08 .84High ($120) 5.46 1.23 4.56 1.32 4.93 1.16 5.49 .82

Purchase satisfaction:Low ($80) 4.38 2.56 3.33 2.24 3.55 2.00 5.75 2.17Same ($100) 9.05 2.24 7.86 2.41 8.07 2.28 8.07 2.19High ($120) 10.02 1.77 8.23 2.72 8.57 2.70 9.06 1.82

good deal by paying less than the comparison price of $120,the pricing mechanism no longer affected fairness percep-tions ( , ), suggesting that a perceived priceF p .32 p p .58deal overshadowed the mechanism used to set the price.Satisfaction results showed a similar pattern, with partici-pants in the $120 condition showing no significant differ-ence in satisfaction based on pricing mechanism in the pres-ence of a good deal.

STUDY 3: TEMPORAL SENSITIVITY

Method

A 3 (price level)# 3 (time difference)# 2 (order) mixeddesign was employed. Price differences associated with theon-line purchase of a boxed set of television program DVDswere manipulated between subjects. The three-level timefactor (representing prices encountered 1 hr., 1 day, or 1mo. previously) was varied within subjects. Temporal orderwas varied (increasing vs. decreasing). No order effects wereobserved, and subsequent analyses were pooled over thetwo orders. One hundred fifty-five respondents from an un-dergraduate subject pool participated for extra credit; cellsizes ranged from 49 to 54. The same nine-item fairnessand four-item purchase-satisfaction measures employed instudies 1 and 2 were used again as dependent variables. Theaverage reliabilities were 0.90 and 0.79 for perceived fair-ness and purchase satisfaction, respectively. The averagecorrelation between the dependent fairness and satisfactionmeasures was 0.62 ( ). Finally, participants werep ! .01asked to list any thoughts they had related to the purchasecontexts and then respond to several demographic questions.

Results

The study 3 condition mean scores are presented for bothdependent variables in the last six columns of table 2. Forboth dependent variables, significantF-values ( )p ! .01were observed for both the price- and time-difference maineffects, as well the two 2# 3 interactions. Briefly, theF-values from the perceived fairness measure analysis for theprice and time main effects and the price# time interactionwere 43.51, 4.88, and 4.81, respectively. The corresponding

F-values for purchase satisfaction were 23.30, 6.50, and11.29. Overall, the pattern of condition mean scores wassimilar for both perceived fairness and purchase satisfaction.

To test hypothesis 3, comparisons across the three tem-poral difference conditions were made within each pricecondition. The overallF-values for the $80, $100, and $120comparison price conditions involving perceived fairnesswere 6.50 ( ), 2.20 ( ), and 0.21 ( ),p ! .01 p p .12 p p .81respectively. Pairwise contrasts within the $80 price con-dition revealed a monotonically increasing pattern of meansas the time difference increased. These results then supporthypothesis 3, as well as the premise that proximal priceshave more impact when consumers feel they are at a dis-advantage (i.e., that others paid less). Specifically, and aspredicted in hypothesis 3, the effect dissipates as timeelapses and more distal prices are involved. Like the resultsfrom study 1, if consumers encounter equal (i.e., $100) orbetter (i.e., $120) deals, perceptions of price fairness andpurchase satisfaction are both higher and, in the case ofstudy 3, not affected by temporal differences.

Last, two judges working independently coded the open-ended thought data with respect to time references and at-tributions. Across the 104 relevant thoughts, agreement be-tween the two judges was 90%. Differences were resolvedthrough subsequent discussion. Analyses of these responsesrevealed a number of noteworthy findings. First, respondentswere much more likely to be opposed to short-term pricechanges when comparison others paid less ( ,2x p 11.70

). In contrast, participants were more likely to men-p ! .01tion that prices should drop over time when similar or highercomparison prices were involved ( , ).2x p 5.71 p p .06Moreover, the respondents more readily provided attribu-tions for the time-based differences when others paid less( , ). Interestingly, the attributional-related2x p 10.61 p ! .05reasons were equally distributed across individual and com-pany-related causes, showing equal likelihood of blamingoneself for poorly timed purchases and blaming the companyfor using unfair pricing practices.

GENERAL DISCUSSION

The studies presented offer guidance as to which dynamicpricing circumstances are likely to evoke negative fairness




TABLE 2

FAIRNESS AND SATISFACTION MEAN SCORES AND STANDARD DEVIATIONS: STUDIES 2 AND 3

Dependent variable andprice condition

Study 2 Study 3

Asked price Bid price 1 hr. 1 day 1 mo.

Mean SD Mean SD Mean SD Mean SD Mean SD

Perceived price fairness:Low ($80) 3.71 .84 4.49 .82 2.68 1.24 3.22 1.13 3.75 1.05Same ($100) 4.68 1.15 5.40 1.05 4.28 1.52 4.33 1.29 4.07 1.12High ($120) 4.88 1.02 5.07 1.14 4.72 1.76 4.78 1.08 4.73 1.18

Purchase satisfaction:Low ($80) 3.48 1.79 4.47 2.73 2.89 3.53 3.32 1.90 4.88 2.11Same ($100) 7.23 2.10 9.10 1.35 7.09 3.25 7.34 2.93 7.18 4.22High ($120) 9.04 2.03 9.16 1.71 8.23 2.90 8.60 3.48 8.30 2.42

perceptions. Importantly, and compared with the other trans-action characteristics included in this research (i.e., seller,time, and price setter), the results of study 1 revealed throughscaled responses and thought data that differences betweenconsumers resulted in the greatest perceptions of unfairness(in keeping with fairness heuristic theory) and the lowestoverall satisfaction. Study 1 also demonstrated that out-comes associated with auctions were the least likely to beperceived as unfair. Evidence from the thought data suggeststhat consumers attribute their outcomes within auction con-texts to themselves (83% vs. 17% of attributions) rather thanthe seller (Weiner 1985). In addition, the cognitive-responsedata demonstrated the important occurrence of spontaneousjudgments about the fairness of prices, but minimal spon-taneous consideration of cost issues, as explanations forprice differences.

Study 2 demonstrated that consumers have higher fairnessperceptions and satisfaction across all price-level conditionswhen they play a role in the price-setting process (i.e., pricediscovery) than when the prices are set by the retailer (i.e.,price posted). However, more detailed analysis revealed thatthis effect is diminished when the consumer receives a gooddeal.

The specific focus on timing differences in study 3 dem-onstrated that consumers view price changes within veryshort time periods as more unfair than changes over a moreextended time period, especially when exposed to lowerprices. After a month delay, pricing-level differences nolonger affected fairness perceptions. Thought data confirmedthat significantly more thoughts about the unfairness ofshort-term price changes were expressed by those who wereexposed to a lower price. Evidence that consumers’ per-ceptions of fairness can be affected both by encountering amore favorable or a less favorable outcome was found.

Overall, the contributions of the research were the con-sideration of multiple dynamic price contexts and the in-vestigation of those effects on perceived price fairness andoverall purchase satisfaction. These effects were investi-gated relative to one another, revealing resistance to con-sumer-based price differences and the acceptance of bidding-based price differences. In addition, two characteristics, time

and price setter, were further examined. The temporal thresh-old for dynamic pricing changes over time was addressed,and reactions to bid versus asked prices were explicitly re-vealed. Caveats are warranted regarding limitations of thisresearch. The studies were all lab experiments involvingstudent participants and purchase scenarios. Simulations in-volving purchase scenarios over time in which consumersare able to learn about the dynamic pricing scenarios wouldprovide additional tests of the relationships found. Certainlythe effects of dynamic pricing may be even more pro-nounced when varying prices are encountered in realisticshopping environments and under conditions of higher in-volvement. Consumers may be exposed to a variety of con-texts characterized by dynamic prices. An additional studynot reported here replicated the pattern of results found instudy 1 using a within-subjects design for the four pricingcontexts. Specifically, the consumer-based and auction-based differences were perceived as the most and least un-fair, respectively.

Although the present results provide evidence regardingwhich transaction characteristics are most important to con-sumers in making fairness judgments, other questions re-main. The thought data collected in studies 1 and 3 providedevidence of various types of attributions that consumersmight make, but further research is needed to fully under-stand the impact of these attributions (Bolton et al. 2003).In addition, the effects of uncertainty remain unresolved.For example, uncertainty regarding what comparison othershave paid may interact with the credibility of the source(e.g., retailer price tier, closeness of relationships with com-parison consumers) in affecting fairness judgments. Fur-thermore, consumer knowledge about pricing in generalshould be examined as a potential factor explaining fairnessperceptions.

Future studies can further test the transaction character-istics addressed in the present research, as well as exploreadditional contextual factors (Bolton et al. 2003; Xia andMonroe 2004) and various combinations of these charac-teristics that are used in the marketplace. It is likely thatthese characteristics interact to affect consumers’ overallevaluations of fairness and satisfaction. Future research us-




ing purchase simulations would enable tests of conditionswhen consumers encounter discrepant price information ontheir own and resulting effects on fairness and satisfaction.In such situations, consumers would have to create theirown representative comparison. As dynamic pricing be-comes more widespread in use, it is critical that marketersunderstand how consumers respond to various dynamic pric-ing mechanisms.

APPENDIX

STUDY 1 PRICE CONTEXT STIMULI

You have been wanting a new DVD player and havedecided exactly what brand and model you will buy. Yougo on-line and use your own money to purchase the DVDplayer from a well-known on-line retailer:

1. for a total price of $100. Later the same day, you seethe exact same DVD player at another well-known on-line retailer for a total price of [$80/$100/$120]. (Dif-ferent seller)

2. for a total price of $100. The next day you overheara conversation at school about another student pur-chasing the exact same DVD player as you from thesame on-line retailer the day before for a total priceof [$80/$100/$120]. (Different customer)

3. for a total price of $100. The next day, you go backto the same on-line retailer to look for another productand you see the DVD player you purchased the daybefore for a total price of [$80/$100/$120]. (Differenttime)

4. by placing the winning bid for $100. You notice laterthat another auction that ended around the same timeas yours had a winning bid of [$80/$100/$120] for thesame DVD player. (Different auction)

STUDY 2 PRICE CONTEXT STIMULI

Boxed DVD sets containing entire seasons of varioustelevision shows typically sell for somewhere between about$60 and $160 for two seasons. You have been wanting topurchase a boxed set of DVDs containing the first two sea-sons of your favorite television show. You go on-line anduse your own money to purchase the boxed DVD set froma well-known on-line retailer:

1. paying the asked price of $100. You notice later thatday that the asked price at the retailer’s Web site is[$80/$100/$120] for the same boxed DVD set. (Askedprice)

2. by placing the winning bid for $100. You notice laterthat another auction that ended around the same timeas yours had a winning bid of [$80/$100/$120] for thesame boxed DVD set. (Bid price)

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