Let your algorithm shine: The impact of algorithmic cues on consumer perceptions of price discrimination

Abstract

How can hospitality and tourism firms reduce consumers’ perceptions of unfairness regarding their price discrimination practices? We propose that pricing algorithms, as advanced revenue management tools, can play a role. We demonstrated the effects of an algorithmic cue through a tweet analysis and four experiments. We found that informing consumers that the offered price is determined by algorithms mitigated their negative responses in the disadvantaged price discrimination context. Also, such algorithmic cue effects only occur when the algorithm is less anthropomorphic (vs. highly anthropomorphic or human). The positive impact of an algorithmic cue was identified not only when customers directly experienced disadvantaged price discrimination but also when they obtained the information from different channels. The results suggest hospitality and tourism firms that have implemented pricing algorithms in their revenue management can benefit from disclosing an algorithmic cue to customers.