The identification of social norms of price discrimination on the internet

Abstract

PurposeThe 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/approachThe study involves an online survey of 387 respondents. The survey was designed to measure both the consensus and the strength of consumer reaction to seller behaviors. To establish that a behavior is the norm, the consensus has to be greater than a 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.FindingsThe 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 implicationsThe implications are that e‐tailers need to 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/valueBy 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.