To Keep Price Consistency or Not : Multi-Channel Retailing with Consumers' Fairness Concern

Multi-channel retailing is appealing as it offers an opportunity to reach more consumers, yet retailers need to take caution when determining the selling prices for the same product sold across different channels, especially when the market is filled with some consumers who exhibit inequity aversion and incur disutility if the channel they buy from charges a higher retail price than the other channel. In this paper, we propose a stylized game-theoretic model to investigate a multi-channel retailer's optimal pricing strategy in the presence of consumers' fairness concerns regarding inconsistent prices across channels. We investigate the impact of consumers' fairness concerns on the firm's pricing strategy, profitability, and consumers' surplus. Among other results, we find that the multi-channel retailer should maintain consistent price across both channels only when the fraction of fair-minded consumers is in a intermediate range, and otherwise charging inconsistent channel prices is more profitable. Particularly, as more consumers exhibit fairness concerns, the retailer may even switch from consistent pricing strategy to inconsistent pricing strategy. Moreover, as the fraction of fairness-concerned consumers increases, the retailer may enjoy a higher profit by strategically enlarging the price gap between the two channels to migrate more consumers to shop from the more cost-efficient channel. By contrast, a stronger degree of fairness concern always reduces the retailer's profit. Finally, we investigate the impact of fairness concerns on consumers' total monetary surplus, and find that either enhancing the degree of fairness concerns or expanding consumers' awareness of fairness concerns may not necessarily benefit consumers. Interestingly, we find that both the retailer and the consumers can possibly achieve a win-win outcome as the market fills with more fairness-concerned consumers, but may experience a lose-lose outcome when the existing fairness-concerned consumers have stronger inequity aversion