Behavioral reactions to price discrimination: Experimental evidence on pricing and customer antagonism
This study uses a novel experiment to investigate behavioral constraints on personalized pricing. I test different models of customer antagonism and provide insights into pricing and reactions to price discrimination. First, I find that sellers shy away from price discrimination if prices are public. Second, sellers are more likely to overprice customers with a low willingness to pay if prices are public. Third, customers are not generally antagonized by price discrimination: while they are less likely to buy if they are charged a higher price than another customer, they are more likely to buy if they are charged a lower price – independent of whether prices are below or above their willingness to pay. These patterns are consistent with a reference point model, which assumes that prices constitute reference points determining purchase decisions.