The identification of social norms of price discrimination on the internet
| DOI | https://doi.org/10.1108/10610421011046193 |
| Pages | 218-224 |
| Published date | 02 June 2010 |
| Date | 02 June 2010 |
| Author | Sarah Maxwell,Ellen Garbarino |
| Subject Matter | Marketing |
Pricing strategy & practice
The identification of social norms of price
discrimination on the internet
Sarah Maxwell
Fordham University, New York, New York, USA, and
Ellen Garbarino
Faculty of Economics and Business, University of Sydney, Sydney, Australia
Abstract
Purpose – The purpose of this paper is to identify some of the current social norms of pricing that constrain sellers’ discriminatory pricing on the
internet. Violations of such social norms can lead to perceptions of price unfairness and swift and potentially damaging negative reactions from
consumers. This paper seeks to demonstrate a state-of-the-art technique for assessing social norms, to identify current norms using a large
representative sample of US consumers and to distinguish between social norms and personal beliefs.
Design/methodology/approach – The study involves an online survey of 387 respondents. The survey was designed to measure both the consensus and
the strengthof consumer reactionto seller behaviors. Toestablish thata behavior is thenorm, the consensushas to be greater thana 65 percent agreement
and the strength of the response has to be significantly different from neutral. Both personal beliefs and perceptions of society’s beliefs were collected.
Findings – The paper finds that some of the social norms constraining discriminatory pricing on the internet are as follows: a seller should charge the
same price for a given item to all customers; a seller should not charge a higher price to either more loyal or more frequent customers; a seller should
not charge more to new or infrequent customers; and a seller should not charge less to infrequent purchasers. In addition, although it is not established
as a norm, a surprising 50 percent of the respondents think that Americans in general believe that all retailers should charge the same price for the
same item. The paper also finds that personal beliefs are consistent with social norms but more extreme.
Practical implications – Theimplications are that e-tailers needto be careful about price discrimination on the internet – many of the most profitable
practices violate current internet pricing norms. For example, consumers do not think that it is fair to give a cheaper price to a new buyer than to a
repeat buyer. However, different e-tailers can offer the same product at a different price. That is not considered price discrimination.
Originality/value – By identifying the social norms of pricing, sellers are provided with the information they need to avoid unwitting violations of
those norms. Sellers can thus avoid angering their customers, as Amazon did when they allegedly charged new customers less than established
customers.
Keywords Prices, Social norms, Discrimination
Paper type Research paper
Price discrimination involves charging different prices for the
same product when sold to different customers. Sellers like
price discrimination because it allows them to extract the
maximum profit from each buyer. But buyers dislike price
discrimination partly because it is un-American – we are a
nation that believes in equal opportunity for all – and partly
because buyers fear that they will be the ones charged the
higher price, which they think unfair.
Because the public does not approve of price
discrimination, there are some laws that restrict it. There
are, nonetheless, many examples of perfectly legal price
discrimination like coupons, sales and rebates. Movie houses
charge a lower price to students and seniors. Restaurants
charge less for “early bird specials.” Universities give tuition
discounts to the less affluent. Magazines charge less for a
yearly subscription. As Edward Zajac (1978, p. 52) wrote:
The public’s attitude to price discrimination is not capable of rational
exposition. Broadly speaking, it dislikes discrimination, but special cases are
tolerated.
What is tolerated depends on the social norms of the culture.
Examples of cultural differences in the social norms of
exchange can be clearly seen when the US is compared to
India. On his blog, Ritesh Banglani (2009), a professor at ITT
in Bangalore, gives some examples of the price discrimination
practices followed in India. He cites an Indian take-out
restaurant that has different prices for meals depending on
where they are delivered: the price is as much as 50 percent
higher in rich neighborhoods. He writes of another restaurant
where the menu in English has higher prices than the menu
painted on the wall in the local language. And he points out
that the Taj Mahal costs $10 for tourists but only 25¢ for
Indians. Such price discrimination is evidently the social
norm in India.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
19/3 (2010) 218–224
qEmerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610421011046193]
218
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