Price Fairness: Good and Service Differences and the Role of Vendor Costs

Prior research suggests that consumers are forgiving of a price increase that is commensurate with increased vendor costs. We argue that the perceived fairness of the price increase will also depend on the alignability of the cost and price increases, such that alignable increases will be perceived as more acceptable than nonalignable increases. Moreover, we predict that when a cost increase is non-alignable, consumers will be more receptive to a service price increase than a goods price increase. Evidence from a series of experiments supports both pre-dictions. Consumer reactions to a price increase are influencedby a variety of factors, not the least of which is the principle of dual entitlement (DE; Kahneman, Knetsch, and Thaler 1986). The DE principle argues that perceived fair-ness is governed by the belief that vendors are entitled to a reference profit and customers are entitled to a reference price and, moreover, that price increases that are commen-surate with cost increases will be perceived as fair, ceteris