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Abstract
Mobile web technology enables discriminatory, or personalized, pricing for many
more consumer good categories than has traditionally been the case. Setting prices
according to individual valuations, however, generates adverse consumer reaction un-
less consumers are invited to participate in the price-formation process. Consumer
perceptions of price fairness are key to the sustainability of any discriminatory pric-
ing regime. Perceptions of price fairness, in turn, are hypothesized to be shaped by
"self-interested inequity aversion" in which prices tend to be regarded as unfair, and
purchase probabilities fall, if others are perceived to pay a lower price, while prices
tend to be regarded as more fair, and consumers more likely to purchase, if inequity is
in the buyers favor. Our experimental data also shows that the implications of inequity
aversion for sellers can be at least partially reversed if consumers are allowed to par-
ticipate in the price-formation process by negotiating the price they pay. The primary
implication of our
ndings is that, in order to be viable, any system of discriminatory
pricing for consumer goods should invite consumers to have a stake in the price they
pay. Such participatory pricing may provide one way out of the current trap of Hi-Lo,
or promotional, pricing that neither retailers nor manufacturers regard as sustainable.