Consumer Behavior under Benevolent Price Discrimination

Abstract

Extensive research shows that consumers are generally averse to price discrimination. However, instruments of differential pricing can benefit consumer surplus and alleviate inequity through targeted price discounts. This paper examines how these outcome considerations influence consumer reactions to price discrimination. Six studies with 3951 participants show that a large share of consumers is willing to costly switch away from a store that introduces a discount for low-income consumers. This happens irrespective of whether income differences are due to luck or merit. While the price-discriminating store does attract some new high-income consumers, it cannot compensate the loss of existing consumers. Allowing for altruistic preferences by simulating a market mechanism increases costly support for price discounts, but does not alleviate consumer aversions. Finally, we provide evidence that warm glow drives costly support for price discounts.