Dynamic pricing in internet retail: Effects on consumer trust

Abstract Individual‐level price discrimination, while not a new idea, is more than a theoretical possibility in the Internet age. Economic theory argues that dynamic pricing (i.e., individual‐level price discrimination) is inherently good for the profitability of the firm, because it allows the firm to capture a larger share of the consumer surplus, but anecdotal evidence from recent retail experiments with Internet‐based dynamic pricing suggests that consumers react strongly against this practice. Using a two‐dimensional conceptualization of trust, based on benevolence and competence trust, the current experiment examines how the experience of a dynamic pricing event and the direction of the pricing discrimination (i.e., whether one is offered the higher or the lower price) affects both the mean levels of trust and the weight given to the separate trust dimensions in the formation of overall trust. Because demand‐based pricing, such as dynamic pricing, is generally considered unfair, it is expected that trust levels will be lower and that more weight will be given to benevolence trust. Results show that mean benevolence trust is significantly lower (which leads to a marginal decrease in overall trust) and the weight given to benevolence trust in the formation of overall trust substantially increases. The direction‐of‐price‐discrimination effects are generally unsupported. © 2003 Wiley Periodicals, Inc.