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Procedural and Distributive Fairness: Determinants of Overall Price Fairness

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Abstract

The present research isolates the fairness assessment of the process used by the retailer to set a price, as well as the distributive fairness of the price compared to the price that others are offered, and examines the combined effect of procedural fairness and distributive fairness on overall price fairness. Two experimental studies examine procedural and distributive fairness effects on overall price fairness. In study 1, procedural fairness and distributive fairness are manipulated and found to interact to bring about overall price fairness. In study 2, suspicion toward the seller is found to mediate the relationship between procedural fairness and overall price fairness when the price is disadvantageous.

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Notes

  1. One limitation to our structural model in Study 2 was the use of two items in measuring negative word-of-mouth which may have introduced some bias into the parameter estimates (Iacobucci 2010).

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Acknowledgments

The authors would like to thank the following people for comments on previous versions of this research and manuscript: Ed Rigdon, Ken Bernhardt, Naveen Donthu, and Kent Monroe. This paper is based on the first author’s dissertation. This research was funded by grants provided by the Fordham University Pricing Center, Euro RSCG 4D Impact, Georgia State University, and Virginia Commonwealth University.

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Authors and Affiliations

  1. School of Business, Virginia Commonwealth University, P.O. Box 844000, Richmond, VA, 23284-4000, USA

    Jodie L. Ferguson

  2. J. Mack Robinson College of Business, Georgia State University, P.O. Box 3991, Atlanta, GA, 30302-3991, USA

    Pam Scholder Ellen

  3. Moore School of Business, University of South Carolina, Columbia, SC, 29208, USA

    William O. Bearden

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  1. Jodie L. Ferguson
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  2. Pam Scholder Ellen
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  3. William O. Bearden
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Correspondence to Jodie L. Ferguson.

Appendix: Procedural Fairness Manipulations

Appendix: Procedural Fairness Manipulations

(1) High Procedural Fairness (Cost-Plus Pricing)

  • The seller sets the price to its customers based on its total costs plus a “mark-up” to achieve its profit.

  • The reason for increases or decreases in price is because the costs to the seller have increased or decreased.

  • People pay different prices depending on whether costs have gone up or down for the seller.

EXAMPLE:

  • Seller’s costs = $85.

  • Mark-up = $15.

  • Price to customers = $100.

(2) Low Procedural Fairness (Random Discounting)

  • The seller considers its costs, then sets different prices on a random basis.

  • Any increases or decreases in price occur completely at random.

  • People pay different prices depending on when they buy.

EXAMPLE: Over three separate Sundays, the seller’s advertised price might be:

  • Week 1 $100.

  • Week 2 $90.

  • Week 3 $115.

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Ferguson, J.L., Ellen, P.S. & Bearden, W.O. Procedural and Distributive Fairness: Determinants of Overall Price Fairness. J Bus Ethics 121, 217–231 (2014). https://doi.org/10.1007/s10551-013-1694-2

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