Determining Fairness: a Cognitive Process of Price Fairness Situations

Abstract

Over the last three decades, pricing scholars have devoted a substantial amount of research to understanding what creates the perception of an unfair price. While it is important to understand what leads to an unfair price, it is equally important to understand what makes a price appear fair. Past research has noted that it is possible that fairness and unfairness are conceptually different constructs (Xia et al. 2004, Finkel 2001) and that consumers go through a series of cognitive steps to determine perceptions of fairness (Campbell 1999). It is believed that perceptions of (un)fairness are context-dependent (Hertel et al. 2002), which is why empirical study respondents have a difficult time articulating what constitutes a fair price and report such responses as “I know it when I see it” (Xia et al. 2004). According to Bolton et. al. (2003) fairness is defined as “a judgment of whether an outcome and/or the process to reach an outcome are reasonable, acceptable, or just.” However, understanding the process that consumers go through when determining what makes a price appear fair is important for pricing managers to understand because minimizing the perceptions of unfairness, which has been empirically tested with significant results, leads to stronger levels of satisfaction and customer loyalty (Oliver 1997, Oliver and Swan 1989, Herrmann et al. 2007).