Price Discrimination and Fairness Concerns

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.