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TheJournalofSocio-Economics41 (2012) 255–265

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The Journal of Socio-Economics

jo u rn a l h om epa g e :w w w . e l s e v i e r . c o m / l o ca t e / s o c e c o

Demand cross elasticity without substitutability: An experiment

Luigi Luini

, Pierluigi Sabbatini

aDipartimentodiEconomiaPolitica,UniversitàdiSiena,PiazzaSanFrancescoDˇıAssisi7,53100Siena,Italy

bAutoritàGarantedellaConcorrenzaedelMercato(ItalianCompetitionAuthority),PiazzaVerdi6/a,00198Roma,Italy

a r t i c l e i n f o

Articlehistory:

Received5October2010 Receivedinrevisedform 15November2011 Accepted13December2011

JELclassification:

C93 D12 K21

Keywords:

Demandcrosselasticity Pricereference Unfairness

Antitrustrelevantmarket

a b s t r a c t

Westudyamarketinwhichgoodsareproducedunderlowmarginalcostswithapoordegreeofsub- stitutabilityamongproducts.Inthis environmentwerananexperimenttoexplainwhypricesare interdependentevenwhenpreferencesareindependent.Wecompareourresultstoprevioustheoretical andlaboratoryexperimentalliteratureonpricefairness.Wefindthatevenintheabsenceofinteraction amongsubjects,pricefairness/unfairnessdoesplayamajorroleinthedecisiontoacceptorrejecta deal.Subjectstendtobemoreresistanttoapriceincreaseandrejectadealwhenthepreferredproduct isnotreferencedtopriceincreasesofnotsubstituteproducts,iftheseproductsareconsideredtobea benchmarkforfairconduct.Thusdemandcrosselasticitycanarisebetweenproductsthatarenotsub- stitutes.Thisresulthasimportantimplicationsforantitrustpolicy.Indelineatingamarketperimeter, fairnessconcernssuggestthatproductsthataresimilarbutnotinterchangeableshouldbeincludedin therelevantantitrustmarket.

© 2011 Elsevier Inc. All rights reserved.

1. Introduction

Thereareproductsorservicesthatconsumersrefertoindecid- ingwhetherornottobuyother,similarbutnotsubstituteones.

Considersoccerfanswhohavetodecidewhethertobuyaseason ticket.Naturallytheywouldneverconsiderswitchingtoanother team,yettheydoactuallytakeintoconsideration“similar”season ticketpricespostedbyotherteamsinthesameleague.²Wethere- foreexpectthepricesofseasonticketstohavereciprocaleffectson theirrespectivedemanddespitethelackofgenuinesubstitutabil- ity:inshort,wecandetectthepresenceofsomedegreeofdemand crosselasticitybetweennon-substitutes.

夽 TheviewsexpressedarethoseoftheauthorsandnotoftheItalianCompetition Authority.

∗ Correspondingauthor.Tel.:+390577232608;fax:+390577232661.

E-mailaddresses:luini@unisi.it(L.Luini),pls@agcm.it(P.Sabbatini).

1 Tel.:+390685821369;fax:+390685452369.

2 AninquirybytheItalianCompetitionAuthorityfoundthatfootballclubsmon- itorthepriceschargedbyclubsbasedinothercities,whichwouldappeartobe atoddswiththelackofsubstitutability.Theinfluenceofforeignpricesoninternal competitiveconditions(wheninternalandforeignmarketsareclearlyseparated) isanothergoodexample,alsotakenfromtheactivitiesofthesameAuthority.An inquiryintothepricingofformulababymilkbytheItalianCompetitionAuthority showedthatpricesabroadweremuchlowerthaninItaly.Consumersdonotusually goabroadtobuythistypeofproduct,butthefindingtriggeredapowerfulreaction amongconsumers,whichmadepossibletheentryofanewfirmintothemarket, withasubstantialimpactondomesticprices(Sabbatini,2008,pp.497–499).

This phenomenon cannot be plausibly explained in tradi- tional economics textbooks, accordingto which cross elasticity depends strictly onsubstitutability. Rather, it would appear to be connected withbuyers’ considerationsof fairness: fans will takeseasonticketsfortheirteamiftheyperceivethattheyare priced fairlywithreferencetootherteams’prices. Inthis case, the supporter’s utility function must include this fairness fac- tor.

Thispaperisbasedonthehypothesisthatconsumers’utility dependsnotonlyonthe“acquisition”utilityoftherelevantgood butalsoonthetermsofthetransaction,asinKalman(1968).This approach boilsdowntothechoiceof thepoint ofreference,an essentialingredientofeverytheoryinvolvingfairness.Therefer- encepricedeterminesthecontext towhichconsumers referin choosing,inparticularwhenconsideringthethresholdforaccept- ingorrejectingagiventransaction.

Theintuitionisthatinsuchcircumstances,thelogicalcandi- dateforthisroleisthepriceofsimilar,butnotsubstitute,products.

Fromtheevidence,wecaninferthatconsumersdopayattention tothesepricesinevaluatingtheproducttheyintendtobuy,and thatfirmsbehaveaccordingly.Anaturalcontinuationofthistrain ofthoughtisthatpricesofsimilargoodsthatservereciprocallyas referencepoints,shouldinfluenceeachother.Asaconsequencewe mayobservepricesofsimilargoodsconvergingtowardaunique priceeveniftheproductsarehighlydifferentiatedandthecon- sumersevaluatethemasnon-rivalgoods.Soacertaindegreeof priceuniformitycanbeexpectedevenamonghighlydifferentiated

1053-5357/$–seefrontmatter © 2011 Elsevier Inc. All rights reserved.

doi:10.1016/j.socec.2011.12.011

256 L.Luini,P.Sabbatini/TheJournalofSocio-Economics41 (2012) 255–265 products.Andthisispreciselywhatweobserveinseveralmarket

contexts.

Consider,forexample,themusicCDmarket.Traditionalanalysis predictsthatpricesofCDsbelongingtothesamecategoryshould showhighcross-sectionvariability:withlowmarginalcostsand highoverheadcosts,andthegoodsbeingpoorsubstitutes,prices shouldmainlyreflectthespecificdemandformusicalartistsand shouldconsequentlydivergesubstantially.Instead,wefindacon- vergenceofpricesthroughsomecommonvalues.Theretailprices of recentlylaunched CDs of two artistsfar apart in popularity (sothatonemightwellexpectdifferentdemandelasticities),are almostthesame.ThispatternisnotconfinedtothemusicCDmar- ket.Ticketpricesforfootballmatchesofclubsinthesameleague butdifferentcitiesareverysimilar,independentlyofthenumber oftheirlocalviewers(andsupporters).Moregenerallywefindthe samepricepatternforfilms,CDs,DVDs,standardizedsoftware,live concertsandsportsevents,allmarketscharacterizedbygreatprod- uctdifferentiation,highfixedcostsandnegligiblemarginalcosts.

Mightconsiderationsoffairnessexplainthisevidence?

Thispaperispromptedbytheintuitionthatthepriceofagood (say,thelatestCDbyBeyoncè)canbeusedasareferencingheuris- tictobasefairnessconsiderationfortheacquisitiondecisionofa similarbutnotsubstituteproduct(say,BruceSpringsteen’slatest CD).Sothesetwoproductsshowahighdegreeofpricesimilar- itynotbecausetheyaresubstitutesbutbecausetheirpricesare reciprocallyusedasabenchmarkinassessingfairnessinpricing.

Thepeculiardemandlinksamongnon-interchangeableprod- uctsthatweexploreheremayjustifysomeconsiderationsonfirms’

strategiesandpricing.Inparticular,weexpectthatfirms,awareof theseconnections,mayconsidercooperationtorelaxreciprocal constraintsduetothereferencingroleoftheirprices.Furthermore, effectivemarketpowerneedstobeassessedcorrectly,takinginto accounttheinfluenceofproducersofsimilarproducts.Henceour analysisasksforareconsiderationofthenotionoftheantitrust relevantmarket,commonlyrestrictedtointerchangeableproducts only.Thispapersuggests,instead,broadeningthenotiontoinclude somenon-substitutegoodswhere theyarereferred to bycon- sumersasstandardsoffairness.Thatis,anantitrustmarketcannot restonlyonthenotionofsubstitutabilitybutitshouldalsoinclude productsthatserveasareferencingheuristicforconsumerchoices.

Thepaperisorganizedasfollows.InSection2wereviewthe literatureonreference-priceand priceuniformityinhighly dif- ferentiatedproductmarkets.Section3presentsamodelinwhich consumer’schoicedependsnotonlyonutilitybutalsoonperceived fairness.InSection4wefocusonthepeculiarityoftheCDmusic market,whichdespitegreatproductdifferentiationdisplaysshows aremarkabledegreeofpriceuniformity.InSection5wedescribe anexperimentaimedtobringoutthecausalrelationshipbetween transactionpricefairnessandpriceuniformity.Section6reports theresultsoftheexperiment,andtheconcludingsectiondiscusses thepaper’sfindings,includingthemainimplicationforcompetition policy.

2. Theliteratureonreference-priceandpriceuniformity Fairness intransactions is a popularthemeinthe economic andmarketingliterature.Anumberofpapersshowthatfairness doesplayarole incharacterizingeconomicbehavior. Someref- erencescanclarifyitsnature.Threequestionnaires(Thaler,1985) revealthat theperception of costinfluences theassessment of fairness,whichin turnconditionsconsumerchoices.Household surveys(Kahnemanetal.,1986a,b;FreyandPommerehne,1993) confirmtherelevanceoffairconduct:inparticular,priceincreases duetocostshocksareconsideredfairerthanpriceincreasesdueto demandshocks.

Theseempiricalfindingsthrowdoubtontherobustnessofcon- sumertheoryin which preferencesarestrictly self-centered.In fact,other-regardingpreferencescanalsoplayasignificantrole, andattitudestowardfairnesscanbeafactor.Variousanalytical modelshavebeenofferedtoexplaintheseempiricalobservations.

Kahnemanetal.(1986a) pioneeredwiththe“dualentitlement”

approach,whichhingesontheideathattransactors(consumers, workers)“haveanentitlementtothetermsofthereferencetrans- action,andfirmsareentitledtotheirreferenceprofits”.Onlywhen profits are jeopardized are firms entitled to modify prices (or wages)totransactors’detriment.Itisinterestingtonoticehowthe fairnessofatransactionisdefined:

“Themeasureoftransactionutilitydependsonthepricetheindi- vidualpayscomparedtosomereferenceprice,p*.(...)Themost importantfactorindeterminingp*isfairness.”(Thaler,1985,p.

34).

Thislineofresearchhasattractedagooddealofinterestand hasraisedanumberofissuesrelatedtotheprecisemeaningofthe senseoffairness,³ thefactorsthatinfluenceitanditsimpacton consumptionchoicesandpricingdecisions.Somearticlesreview themainanalyticalcontributionsandshowtheamountofempiri- calandexperimentalresearchonthetopic:somefocusingonprice fairness(Xiaetal.,2004)andsomeonother-regardingpreferences (CooperandKagel,2009).

Thefocusofthisapproachisonhowconsumersconductthe comparisonthattriggersthesenseofprice-unfairness.Threeref- erencingheuristicshave beenproposed:(a)previousprices,(b) seller’scosts,and(c)pricesofcompetinggoods.

Previous prices– Oneobvious waytotracebacka reference priceistolookattheearlierpriceschargedforthesameprod- uct.Experimentalstudies(Brieschetal.,1997)aswellasanalytical contributions(Kahnemanetal.,1986a;Rotemberg,2004),seemto confirmthispointofview.Inparticular,Rotemberg(2004,p.4) referstoconsumers’angryreactionstriggeredbylearning“some- thingthat makesthemwishtheyhadcarriedoutadifferentsetof transactionsatanearliertime”.Sothereferencetopreviousprices isthestartingpointofhisanalysis.Thefactthatpricechangesare noteasilyinterpretedbyconsumersdoesnotaffectthisapproach, whichisdesignedtoexploretherationaleforstickypricing.Con- sumersareassumedtobegenerallyhostiletopriceincreases,as theydonotunderstandtheunderlyingrationale.

Putler(1992)presentsananalyticalmodelofconsumerchoice based on utility functions that also encompass, as arguments, marginallossesandgains.Theselossesandgainsaredetermined bythedifferencebetweenthepriceoftheproductunderconsider- ationanditsreferenceprice,whichisanexpectedpricebasedon pastvalues.Theauthorgiveseconometricevidenceofthiseffect, whichbasicallyshowsthatdemandpriceelasticityishighwhen pricesincreaseandlowwhentheydecrease.

Seller’scosts–Otherapproaches,whileintroducingtheroleof fairnessineconomicbehavior,assumethatconsumersmakesome inferenceonthecauseofpricechanges.Thatisthecaseforthe“dual entitlementtheory”(Kahnemanetal.,1986a),bywhichonlyprice changesthatarenotjustifiedbycostincreasescantriggerconsumer reaction.Thalerclarifiesthispointbyarguingthatthereference- priceisbasedoncosts(Thaler,1985,p.34).SimilarlyOkun(1981) – whois generallycredited for havingoriginatedtheliterature onfairness–notesthatonlypriceincreasesthatareunjustified bycostincreasescanprovokeconsiderationsofunfairness,which impliesthatconsumersusecostsasareferencepointinevaluat- ingprices.Interestingly,theseapproachesofferanexplanationfor

3Smith(2005)reportsalonglistofdifferentnotionsoffairnessemployedinthis branchofeconomicliterature.

L.Luini,P.Sabbatini/TheJournalofSocio-Economics41 (2012) 255–265 257 pricemark-up,apricingpolicythatanticipatesunfairnessreactions

byconsumers.

Accordingtothistheory,consumersknowthesellers’coststruc- ture,anassumptionthatcertainlycannotbetakenforgranted.For example,Boltonetal.(2003)presentexperimentsinwhichcon- sumersareunabletodistinguishthereasonsforpriceincreasesand arepuzzledbyinflation.Consumerslackaccesstocostinformation andcannotextrapolatecorrectconclusions⁴fromthelimiteddata theydohave(Boltonetal.,2003).Thiswouldappeartobedecisive initself.Butwecanaddafurtherargument:inourmarketoverhead costsprevailovermarginalcosts,andpricestructureshouldbeset- tledbyfirmsaccordingtothestrengthoftheseveralcomponentsof demand.Inthiscasethereisnosatisfactorywayforconsumersto relateunfairnessconcernstothecoststructure.Costs,then,seem tobeanunsuitableprice-reference.⁵

Pricesof substitutegoods-Anumberofworkshave explored theimpact on marketing strategies of perceptionsof prices of substitutes⁶inconnectionwithfairness(Xiaetal.,2004;Anderson andSimester,2008; Dholakiaet al.,2005).Whenproductslook alike,itisargued,pricecomparisoniseasyandconsumerscaneas- ilydetectunfairness.Thisthesiscannotbeendorsed:werather thinktheopposite.Thepricesofsubstitutescannotbeconsidered abenchmarkforunfairness,whichinsteadisinevitablyassociated withthelackofalternatives⁷:ifthesubstitutegoodsarecheaper thantheonebeingconsidered,consumerssimplychoosethelower- pricedalternative,possiblyafteralearningprocess.Soitisonly whenthedegreeofsubstitutabilityislow(orwhenmarketpower isgreat)thatunfairbehavior(andfairnessconsiderations)arises.

Fairnessshouldnotplayanyrolewhenfirmsdonothavemarket power,becauseinthiscaseconsumershavealternativesandfirms cannotexploitunfairbehavior.Itfollowsthatifourbenchmarkis pricesofcompetingproducts,therelevanceofthesenseoffairness isrestrictedmerelytoshort-termdisequilibria.

Inshort,then,alltheseapproachestoreferencepriceproveto beunsatisfactory.Ontheonehand,buyersaregenerallyunableto analyzeeitherthepreviouspricesorthecoststructuresofsellers.

Andontheother,wedonotexpecttheretobecompetingproducts whenfairnessisanissue.

Notice that the literature, although originally focused on prices,tookvariousdirections,andthereferencenotiongradually switchedfrompricestoproductcharacteristics.Thepresentlitera- tureonlossaversiontypicallyconsidersconsumerutilityfunctions conditionedby“frames”or“referencestructures”thatrefertosome standard,orexpected,orpre-existingcharacteristicbundles.⁸Our contributionisastepbackfromthisapproach.Thatis,werestore

4 Theretailpriceofgasolineisrelatedtothepriceinthewholesaleoilmarket, butthenumberofretailmarketsthatworklikethegasolinemarketappearstobe quitelowindeed.

5 InanempiricalsurveyconductedinSwitzerland(FreyandGygi,1988;Freyand Pommerehne,1993)anincreaseinthepriceofsnow-chainsonsnowydayswas perceivedbythegeneralpopulationashighlyunfair.Thisisalsothemajorcontri- butionbyFranciosietal.(1995);albeitfromadifferentperspective,theydescribe severalexperimentsshowingthatbuyersgetusedtoapriceincrease(thatis,the eventualinitialfeelingofregretvanishes)afterawhile,whetherornotitisjustified byhighercosts.

6 Brieschetal.(1997),Albaetal.(1994),LichtensteinandBearden(1989),and Dholakiaetal.(2005).

7 IntheRotembergmodelthesenseofunfairnesscoexistswithalternatives becauseitarisesoutofacomparisonbetweenapresentandahypotheticalpur- chase,whichcouldhaveoccurredatanearliertime.Butinthiscasethecomparison iswithpreviousprices.

8 Inthesecasespricefixingorpriceraisingbyfirmsisfullyaccepted(perceived asfair)byconsumers.Otherwiseanomalies(Kahnemanetal.,1991)emerge.With relationtothethreeclassicalanomalies:(1)endowmenteffect,(2)lossaversion, and(3)status-quobias,theendowmenteffect–atypicalseller-sideanomaly (BeggsandGraddy,2009)mustbeexcludedfromouranalysis,whichconsidersonly consumer-buyerbehavior.Underthesegeneralconditionsofprice-makingfirms andprice-takingconsumers,alltransactionsturnintoexchanges.Whilethebulk

thefocustopricecomparison(withareferenceproduct)forthe purposeofjudgingthefairnessoftheproposedtrade.

Theonlyarticle,toourknowledge,thatdealsexplicitlywith thereferencingroleofnon-substituteproductsisAndersonand Simester(2008),whichexaminesthepricesofclothesofdifferent sizes.Theirevidencesuggeststhatthedemandforclothesisinflu- encedbythepricesofclothesofdifferentsizes,inducingahigh degreeofpriceuniformity.Theauthorsfindthat thispatternis duetothesenseofunfairness;theindirecteffectoftheperception ofunfairpricingismuchstrongerinreducingconsumerdemand thanthedirecteffectofthepriceincreaseitself.Thearticlecan thusbereadasacontributiontotheanalysisofpriceuniformityin marketsforhighlydifferentiatedproducts,aphenomenonthathas beendetectedinanumberofempiricalstudies.

McMillan(2007)offerspartlyanecdoticevidenceofthedegree ofhomogeneityinretailers’pricingoftea,wine,clothingandbooks.

Otherpapersstudythegaininprofitsfromabandoningpriceuni- formity(orlimitedpricedifferentiation)inthemusicCDmarket (ShillerandWaldfogel,2011)andinmovietheaters(Leslie,2004;

OrbachandEinav,2007).Additionalevidencecomesfromthesticky priceliterature,whichemphasizeslowinter-temporalpricedis- crimination(BallandMankiw,1994).

Threeexplanations,allhingingonthesupplyside,havebeen suggestedtoaddresstheproblemofuniformity,purportedlynon- optimal,inpricing:(1)menucosts;(2)softeningcompetition;(3) verticalcontracts.Someauthors(Leslie,2004;BallandMankiw, 1994;McMillan,2007)andanumberofbusinessmen(interviewed byMcMillan,2007)maintainthatmenucosts,variouslydefined, canexplainfirms’pricingpractices.Thatis,theadditionalearnings thatcanbeattainedbygreaterpricedifferentiation,donotalways coverthecostoftheprecisecalculation(andupdating)ofpricestai- loredtodistinctdemandsegments.Asecondargumentseesprice uniformityastheoutcomeofstrategicbehaviorbyfirms,aimed at softeningcompetition acrossdifferentmarkets(Corts,1998).

Finally,OrbachandEinav (2007),toexplainwhattheyconsider asunprofitablepricingbehaviorbymovietheatermanagers,trace thecausetothelegalregimethatforbidsverticalarrangements betweendistributorsandthetheaters.

The authorsthemselves acknowledgethatthese supply-side approachesdonotofferaconvincingexplanationofthelowdegree ofpricedifferentiationtheyfind.Weaccordinglyturntoadifferent lineofresearch,hingingonthedemandsideandinparticularon considerationsofpricefairnessorunfairnessthatappeartomoti- vateconsumerbehavior.

3. Transactionutilityasanexplanationfordemandcross elasticity

Our basic intuition can beset out as follows.Traders natu- rallylookforareference-price,which isa syntheticindicatorof generalmarketconditions,conveyinginformationrelevantforthe exchange.Intraditionalmarkets,wherethegoodsarestandardor undifferentiated,thisfunctionisperformedbythecompetingprod- uctsthemselves.Forthisreasonthefunctioncannotbeisolated, asitisassociatedwithrelationshipsofsubstitutability.Butmar- ketswithhighlydifferentiatedgoodscanbeconsideredgenuinely monopolistic,asnoproductcompeteswithanyoftheothers.Nev- ertheless,consumersstillneedsomereference-pricetoassessthe fairnessofthedealtheyareoffered,sotheytakewhatisavail-

oftheliteratureonpricefairnessisfocusedonthesellerside,ourpaperismainly focusedonprice-unfairnessissuesontheconsumerside.Brown(2005)presentsa realcashexperimentinwhichlossaversiondoesnotdependontheendowment effectandoffersadifferentexplanationfortheWTA-WTPdisparitywithrelationto inexpensivemarketgoodswithamplesubstitutes.

258 L.Luini,P.Sabbatini/TheJournalofSocio-Economics41 (2012) 255–265 able:similarproducts.Theproductsaresimilarnotonlyinproduct

classificationbutalsoin beingsubjectedtothesame economic forces(theyallare“quasi”monopolies).Therationaleforcompar- ingquasi-monopoliescanbetracedbacktoanotionoffairprice thatmonopoliststoomustadhereto.Thepeculiarcoststructureof thesemarketsmustalsobeconsidered.Overheadcostsareoften paramount,somarginalcostsoffernoclearreferenceforfairnessin pricing,whichisonemoremotivationfortherecoursetotheprices ofsimilarproducts.

3.1. Themodel

Thecross-elasticityofdemandisusually associatedwiththe substitutabilityofproducts.Thedemandforproduct“1^increases asthepriceofproduct“2^rises, becausesomeconsumersshift toproduct“1^:that is,theyconsiderthetwoproductstosome extentinterchangeable,sovariationsinrelativepricesmodifythe demandforthetwogoods.Thisrelationshipcanbeexemplifiedby employingtheBowleymodelofdifferentiatedproducts(Bowley, 1924)⁹:inthecaseoftwosubstituteproducts(x₁,x₂)theutility functionfortherepresentativeconsumerandthebudgetconstraint arerespectively:

U(x1,x2,m)=a(x1+x2)−1

2b(x²1+
x1x2+x²2)+m (1a)

M=x1p1+x2p2+mpm (1b)

where
is the parameter that measures the degreeof substi- tutabilitybetweenthetwogoods,misalltheothergoods(price normalizedatpm=1),aandbaretheparametersthatmeasurethe weightofproductsx1andx2respecttothecompositegoodxm,and p_iisthepriceofgoodi,fori=1,2.

From(1a)and(1b)wederivethetwodemandfunctions:

x1=c0−c1p1+c2p2 (2)

x2=c0+c2p1−c1p2 (3)

where c0= a(1−
)

b(1−
²) c1= 1

b(1−
²) c2=

b(1−
²)

Ourintuitionisthatwecanobservedemandcross-elasticityeven betweentwo productsthatarenotsubstitutes foroneanother.

Inotherwords,thethesisisthattheredoesexistdemandcross- elasticitynotassociatedwithadirectshiftinconsumptionbetween twoproductsandthat thisrelationshipdepends onconsumers’

perceptionofpricefairnessorunfairness.

Thisinsightcouldbeframedinthelanguageoftransactionutil- itytheory(KahnemanandTversky,1979;Thaler,1985;Kahneman etal.,1986a), whichpositsthatthetotalutilityaccruingfroma transactionisgivenbythesumoftwocomponents:acquisition utilityandtransactionutility.

Acquisitionutilityisthefactorconsideredbythetraditionalthe- ory,andisequaltothevaluederivedfromconsumingthegood lessthepricepaidforit.Transactionutilityisrelatedtoconsidera- tionsoffairnessanddependsonthecomparisonbetweentheactual pricechargedbythesellerandsomereferenceprice.Itfollowsthat transactionutilitycanalsobenegative,inthecaseofperceived unfairness.

9SeealsoMartin(2002,pp.52–54)andMotta(2004,pp.561–563).

Toadaptthisconceptualizationtotheequationsabove,letus nowconsideraproductwhoseprice(py)istherepresentativecon- sumer’sreferencepriceforfairness¹⁰:

U(x1,x2,m,py)=a(x1+x2)−1

2b(x²₁+2
x1x2+x₂²)

+m+(x1+x2)py (4)

Subjecttotheabovebudgetconstraint(1b).Whereistheparam- eterthatmeasuresthereferencingstrengthofthereference-price (py).

ThesecondpartofEq.(4)dealswithconsumers’perceptionof fairness:theutilityofconsumingx₁orx₂changesinproportion() tothereferenceprice(py).Inpractice,weassumethattheutility totherepresentativeconsumeralsodependsonthehypothetical valueofthetwoproductspricedatthereferenceprice.Noticethat theproductwhosepriceischosenasreferencedoesnotenterthe consumer’spreferenceset.¹¹Thereforeproductsareonlyallowed tohavemutuallyexclusivesubstitutionorfairnesseffects.From thisutilityfunctionwecanderivethefollowingsystemoflinear demands:

x1=c0−c1p1+c2p2+c3py (5) x2=c0+c2p1−c1p2+c3py (6) wherec1andc2asbeforeandc3=((1−
))/b(1−
²).

Thisdemandsystemlooksfamiliar.Buttheinterpretationof thecoefficient(c₃)forthereferenceprice(py)is differentfrom thestandardone(c2).Generally,thepricecoefficientofoneprod- uctinanotherproduct’sdemandequationimpliessomedegreeof substitution.Inourcase,thecoefficient(c₃)dependsontheparam- eter,whichaccountsforthepricefairnessperception.¹²Italso dependsonthedegreeof“closeness”(
)betweenthegoodsx1and x₂:because∂c3/∂
<0,themorecloselytheproductsaresubstitutes, thesmalleristheroleplayedbyconsiderationsoffairness.

Thereforedemandcross-elasticitycouldarisenotonlyfromthe acquisitionutilitycomponentoftheutilityfunction,inlinewith traditionaltheory,butalsofromthepresenceofa secondcom- ponent(transactionutility)duetoareferencingsystem.Ifthisis so,thenin thepeculiarmarket contextwe considerwe should observedemandcross-elasticitywithoutashiftfromoneproduct toanother.Wealsoexpectthatpricechangesforsomeproducts doexertsomeinfluenceonthedemandforotherproductseven whentheyarenotsubstitutes.Itfollowsthatthesegoodsandser- vicesmustshowsomedegreeofpriceuniformity:firms,iftheyare awareoftheirpotentialbuyers’senseofpricefairness,willcarefully evaluatetheadverseimpactofpricedifferentiation.Thereforethe Jevonsiansingle-pricerulemayalsoapplytomarketswithhighly differentiatedproducts.

4. Thesubjectoftheexperiment:themusicCDmarket WerananexperimentonthemusicCDmarket,whichisagood candidatetotest ourmodeland ourinterpretationofdemand- drivenprice uniformity.Thismarket is highlydifferentiated, in thatconsumersexhibitstrongpreferencesforsomemusiciansand

10Thevalueofy,withrespecttom,isnegligible,sowecanstillnormalizetheprice ofpm−1tothevalueof1.

11Inthelanguageofchoicetheorywecansaythattheconsumer’s“consideration”

setdoesnotcoincidewiththe“preference”set:thisframeworkfordecisionconnects theconsiderationsetwiththeperceptionofpricefairness.Insuchacontextthe axiomofIndependenceofIrrelevantAlternativesdoesnotalwaysapply.

12One of the two dimensions of the consumer’s evaluation of fairness in Daskalopoulou(2008)ispricefarness;thesecondisservicefairness.Theauthor allowsfordifferentcombinationsofpriceandservicefairness.

L.Luini,P.Sabbatini/TheJournalofSocio-Economics41 (2012) 255–265 259

relativeindifferencetoothers.¹³Atthesametime,ateverypoint ofsale(physicalorvirtual)retailersdisplayaremarkabledegree ofpriceuniformity(ShillerandWaldfogel,2011),oncematurityis takenintoaccount.¹⁴

Thisfactisparticularlyclearinthecaseofdownloadeddigital music:forexample,allsongssuppliedbyAppleiTunesaresoldat thesameprice.ButitalsogoesforCDretailers,inparticularlarge distributionchains(inItaly,forexample,COOPorAuchan).Asa consequence,consumersperceivethemusicmarketwithaninner characteristicofpriceuniformity.Accordingtoarecentinvestiga- tionbytheEuropeanCommission:

“Some60%ofallthecustomerswhorespondedtothemarketinves- tigationclaimthatmajorspricetheirproductssimilarly.Notably, someclaimthatpricesaresimilarwithinpriceranges(fullprice, mid,budget),andarerathersimilarforchartalbumsbutlessfor catalogue.”(EuropeanCommission,2007,p.104)

ThepricesoftheCDsobservedforourexperiment(thetop20 oftheweekbefore)confirmedthisuniformity:most(12)havethe sameprice(D20.90), another5 wentforjust D1more,andthe remaining3weremoresharplydifferentiated.¹⁵

Thispriceuniformityistheoutcomeofacomplexprocessthat beginswithmusiclabels(majorsand independents)choosinga specificpublishedpricetodealers(PPD)foreachrecordandfixing theappropriatediscountforeachtypeofretailer.PPDsarewhole- salelistpricesappliedtoCDsaccordingtovariouscriteria(basically, typeofproductandcommercialmaturity).Firmsuseonlyalim- itednumberofPPDs:thefirst5PPDsgenerallyaccountforalarge majorityoftotalsales.Everyrecordgoesforaseriesofdifferent PPDsinthecourseofitscommerciallife,startingfromthehighest.

ThePPDsofdifferentlabelsshowminordifferencesandareusedin thesamepatternbyallofthem.Discountstoretailersdependon thetypeofretailer,volume,promotions,etc.Althoughretailprices differaccordingtotypeofretailer,thoseofCDsofthesamevintage atthesameshoparesimilar.Inpartthisreflectsadefinitepractice onthepartofretailersofequalizingthefinalpricesofCDs,which meansearningdifferentmargins.Thereforethepriceuniformityof CDsofthesamevintagesoldbythesameretailerisbasicallydueto acommonmechanismforsettingwholesaleprices(basedonPPDs) andtoretailers’tendencytoadjusttheirmark-upsforgreaterprice equality.

Howcanweexplainthispropensityforpriceuniformityonthe partofmusicfirmsandevenmoreretailers?First,wemustconsider thatfirmsarenotalwaysabletocalculatetheprecisedemandelas- ticityofanygivenCDandsoresorttosomegeneralpricingrules.

ThisisbasicallythefunctionofthePPDsystem.Insteadofinitially pricingaCDaccordingtoexpecteddemand,thelabelmayprefersto launchitatamoreorlessstandardPPDthatwillbekeptunchanged aslongastheCDreceivesattentionfromthepublic.Whendemand decreases,thecompanyrespondsbyloweringitsPPD.Thismech- anismisappealingfornicheCDs,butnotsomuchforthepricingof hitrecords.Here,abetterstrategywouldseemtobespecificcal- culationofthedemandforthatparticularrecordandthesettingof anappropriatepricebasedonthatcalculation.

Second,attheretaillevelitmightbethoughtimpracticalfor sellerstohavetodealwithmultipleprices.Oneexplanationmight bemenucosts,althoughtheseappeartobesuitableprincipallyfor explainingthepricestickinessofCDs.¹⁶Inparticular,weexpect

13 Wealsoexpectdifferentreservationpricesfordifferentartists,independently offairnessconsiderations.

14 Seller’spriceskimmingpolicy(e.g.viaintertemporalpricediscrimination)is usuallynotappliedtohitrecords.

15 PricespostedbyoneofthelargestCDsellersinItaly(Feltrinelli).

16 BrynjolssonandSmith(2000).

thaton-linesellersofMP3filesshouldnotincuranysignificant menucostsinthecaseofasharplydifferentiatedpricing.Actually, however,itispreciselyinthissectorthatwefindthegreatestuni- formityofmusicprices.Thustheuniformityofinitialretailprices musthaveotherexplanations.

Weareinclined tothinkthat thisphenomenonisassociated withthereferencefunctionofprices.Ourthesis,thatis,isthatthe pricesofCDsinanygivencategoryaretakenbyconsumersasasort ofreferencingheuristicforthepriceofanyCDinthatcategory.This wouldforcefirmstoapplythesamepriceinordernottoalienate customers.

5. Experimentdesign

Ourexperimentallowsustodetectthepresenceofreference pricingonlyinacontextofquasi-monopolies.Thatis,weemploy asimplifiedversionofthemodelindicatedinEqs.(5)and(6),asit dealswithonlyoneproduct(whichtheconsumercaneitherbuy ornot)andonereferenceprice:

x1=c0−c1p1+c3py (7)

wherec₃=/b.AccordingtothefollowingmodifiedversionofBow- leyequation:

U(x1,m,py)=ax1−1

2bx²1+m+x1py (8)

Theexperimentteststhefollowingprediction:

Prediction. Theexperimentalsubjectsexhibitreferencebehavior:

thereferencepriceofagoodthatisnotpartoftheirpreferenceset influencesthedecisionwhethertoacceptorrejectthedealproposed.

5.1. Thesetting

Thesubjectsoftheexperimentareundergraduatestudentsat theUniversityofSienashoppingforamusicCD.Onlystudentswho hadboughtatleastoneCDintheprevioustwelvemonths¹⁷were eligible.Theexperimentinvolvesconsumptionbehaviorconcern- ingalistof20CDs.Allarerecenthitsandallaresoldatthesame price(D18istheaveragepriceofinternetsellers).¹⁸

Theexperiment¹⁹isdesignedasfollows:

Preliminarystage–WeaskparticipantstochoosebetweenD3 incashandadiscountbonusofD9foroneCDfromaclosedlistof 20hits.Onlythosewhooptforthebonuscontinue.Thuswescreen outsubjectswithaverylowreservationprice(lessthanD9)for CDs.Atthispointthesubjectsareaskedtofilloutaquestionnaire toelicittheirown“open”list.Theopenlistisdesignedtorevealthe subject’spersonal“open”preferences,asagainstthe“closed”listof hits.Theycanlistuptotwentyoftheirownfavoritemusicians,and inthiswaytheexperimenterscancaptureheterogeneoustastesof thesubjects.

Firststage–Weaskstudents torevealtheirfirstand second preferences²⁰ofCDs,fromtheclosedlistof20hits,atdifferentdis- counts.WestartbyaskingallparticipantswhichCDtheywould liketobuywithaninitialdiscountofD9.Thenweaskiftheywant tobuyotherCDsatthesamediscountedprice.Weprogressively increasethediscount(uptoD11)andchecktheirreactions.Theaim

17Becauseofthegrowingpopularityofdownloading,thedemandforCDshas decreasedsubstantiallyinthelastfewyears(RobandWaldfogel,2006).

18ThepricechargedbythelocalshopinSienawasapproximately15%higher.

19The experiment is conducted on computers using the “z-Tree” program (Fischbacher,2009).

20Theonlypurposeofthisfirststageistoelicitingreservationpricesfortheclosed list.WedonotcommittosellCDsatthevariouspricesindicated.Wewerecareful tokeepparticipantsfromformingtheexpectationthattheywouldbeabletobuy oneCDatthepriceindicatedinthisstage.

260 L.Luini,P.Sabbatini/TheJournalofSocio-Economics41 (2012) 255–265 ofthisstageistosoliciteachparticipanttorevealher/hisreserva-

tionpriceforthespecificlistofCDs.Thisstimulateseachsubject torevealherfirstchoice,secondchoicesand,finally,whatwecall herethe“irrelevantalternatives”,i.e.CDsshedoesnotwanttobuy evenwhentheirpriceisverylow.

Secondstage–Westartthisstagebymodifyingtheoriginallist of20 hitCDs.Foreachparticipantthenew,shorterlistconsists ofthefirstchoiceandallthe“irrelevantalternatives”.Thatis,we eliminateallsecondchoices.Wethendividetheparticipantsinto twogroups.Weofferonegroup(Sample1)thepossibilityofbuying oneCDfromthemodifiedlistatthefollowingprices:D13(aD5 discount)forthefirstchoiceandD9(theoriginalD9discount)for theirrelevantalternatives.Weofferthesecondgroup(Sample2) thepossibilityofbuyingoneCDfromthemodifiedlistforthesame priceofD13(regardlessofwhetheritisthefirstchoiceoroneof theirrelevantalternatives).StudentswhodecidenottobuyanyCD arecompensatedwithadditionalD 2.Thefunctionofthisstageisto checkwhetherthepriceoftherejected(“irrelevant”)alternatives influencesthedecisiontobuythefavoriteCD.²¹

Alltheparticipants,whethertheychoosecashoraCDinthe finalstage,receiveD4fortheirparticipation.

Duetotheirlowincomeandthepossibilityofpiracy,studentsdo notbuymanyCDsandgenerallyhaveaverylowreservationprice forrecordedmusic.Wehandledthisproblem,first,byexcluding thosewhopreferredasmallsum(D3)toasubstantialdiscountof D9ononeoftheCDsfromourlist.Wealsoofferedaverysmall amountofmoneyasanalternativetothediscountonmusicpro- posedinthelaststageoftheexperiment.

5.2. Characteristicsofthesubjects

Thepreliminaryandfirstphasesservetogeteachsubjectto revealher/hisfirstchoiceandallsuccessivechoicesbyproviding theexperimenterswithinformationaboutaseriesofvariables:

(a)numberofCDsboughtinthepreviousyear(preliminaryphase);

(b)preferencesfor“open”list(preliminaryphase);

(c)numberofsecondchoiceselicitedunderthe“closed”listoftop hits(firststage);

(d)numberofCDsselectedunderhighdiscountconditions.

Thankstothepreliminaryandfirstphases,welearnthepartici- pants’preferences,whicharethenusedtosetupthelaststage.We arealsoabletoadjustoursampleforheterogeneitybycapturing whetherthesubjectsdifferbothin“varietypreference”(variables:

(a)–(c))andin“pricesensitivity”(variable:(d)).

Becausetheexperimentisbasedonthereactionsoftwogroups facingdifferentpricestructures,itisimportantthatthetwogroups arehomogeneous.Astheaimistotesthowandwhetherreferenc- ingtothepricesof“irrelevant|”productsconditionsthebehaviorof subjectsfacedwithapriceincreasefortheirpreferredproduct,the riskisthattheresultsmaybedistortedbyotherfactors.Wedeal

21Priceunfairnesscanalsobeperceivedaslackofimpartiality,becausesubjects– byrevealingtheirpreferencesintheclosedlistinthefirststageoftheexperiment– mayconsiderthisasasortofoptiontobuyaCDatabetterpriceinthesecondstage.

Adiscussantofthispaperlabeledthisconsumer’sperceptionasasenseofdeception, notunfairnessproper.Wedonotagree,becausenoexplicitpromisewasmadein thefirststage.Inanycase,thepointiscompletelyinconsequentialwithrespectto themainresultoftheexperimentwhichinvolvesdifferentbehaviorsexplainedby thepricesofirrelevantproducts.Itmayalsobethatsubjectsreactedtotheirsense oflackofimpartialityratherthanalesssevereperceptionofpriceunfairness;the factremainsthattheydidsotodifferingdegree,andthatthisisexplainedbythe pricesoftheirrelevantproducts.Inthiswaynofeelingofexploitation(andnoteven asenseofbetrayaloftrust)canarise.Forasimilarexperimentalinterpretationof thedifferentialpreferenceforfairnessamongsubjects,seeKarnietal.(2008).

withthisbypayingattentiontosubjects’heterogeneitywithrela- tionto:(1)therangeofpreferences(“variety”effect)and(2)their sensitivitytodecreasingprice(“price-sensitivity”effect). “Price- sensitivity”isanobviousfactorthatcouldinfluenceourresults,so inpartitioningtheparticipantsintotwogroupsinthelaststage oftheexperiment,wemaintaintheoriginalproportionsofprice- sensitiveandprice-insensitivesubjects.Similarly,wepayattention tothedifferenceinattitudestovariety.Althoughwedonothavea strongaprioriontheimpactofthisfactor,wesuspectthatitcould influenceparticipants’decisionsinthelaststage.Inpresentingand discussingtheultimateresults,weshallshownotonlythatthis suspicioniswellfoundedbutalsothatthisfactorappearstointer- actwiththesenseofunfairnesswhosedetectionistheprimeaim oftheexperiment.

Inordertoconstructappropriateindicatorsofthesetwoeffects, weproceedasfollows.First,inordertocaptureonesourceofhet- erogeneity,the“varietypreferenceeffect”,thesubjectsareasked, beforefacingthe“closed”listofthetop20hits,tofillinaques- tionnairewiththeirown“open”list.Thiselicitstherevelationof personalpreferences,asthesubjectscanlistuptotwentyoftheir ownfavorite musicians.The experimenters– bycomparingthe choicesfromtheopenlist(variablesaandb)withthechoicesmade bythesamesubjectfromtheclosedlist(variablec)–areableto classifysubjectsintermsoftheirpreferences.Wehaveidentified twotypesofconsumer:(1)variety-preferenceconsumerswhoin bothopenandclosedlistsselectmanymusiciansand(2)focused consumers,whoinbothlistsselectonlyafewmusicians.²²

The“pricesensitivityeffect”isdetectedbystudyingsubjects’

behaviorwhen askedtorevealtheirfirstandsecondchoicesat differentlevelsofdiscount.Theaimofthisincreasingdiscountis toelicit“pricesensitivity”.Withasuccessionofincreasesinthe discount(initiallyfromD9 toD10 andthenfromD10toD11) thesubjectsexperimentallyreveal theirswitch tocheaperCDs.

Measuringthepreferenceforpricedecrease,wegaugethe“price sensitivityeffect.”²³

Bythisprocedureweclassifyourparticipantsaccordingtothe potential two sources of the heterogeneity we have identified, namelythevarietyandprice-sensitivityeffects(Table1).

The choices of 21 subjects show desire for variety and 10 subjectspresentaclearsensitivitytodecreasingprices.Thepro- portionbetween“price-sensitive”and“price-insensitive”andthat betweenpro-varietyandfocusedsubjectsaresimilarforthetwo groupsthattakepartinthetwodifferenttreatments.

6. Theresults

6.1. Themainresult

Inthesecondstageeachsubjectfacesonlyhis/heronefavorite CDandalltheirrelevantones.Thesubjectsarepartitionedintwo groups–similar,asnoted,inallrespectsexceptthatonegroup (Sample1)facesapriceincreaseforallCDsincludingthefavorite (allCDsD13),whiletheother(Sample2)facesapriceincreasefor

22InthefirststageeachsubjectisaskedwhichCD(s)hemightbuywithaninitial discountofD 9offtheInternetprice.Thenthesubjectsareaskediftheywant possiblytobuyotherCDsatthesameprice,measuringinthiswaytheir“love-of- variety”.Inthisexperimentwedefinea“love-of-variety”subjectasonewhoselects 3ormoreCDsatsameprice(no≥3)anda“focused”consumerasasubjectwho selectsonly1oratmost2(no≤2).Thisclassificationisconsistentwiththeranking obtainedbycheckingthenumberofCDsindicatedintheopenlistatthepreliminary stage.

23Inthisexperimentwedefineaprice-sensitivesubjectasonewhoselectsalarger numberofCDsatthenewdiscountedprice(nv)thanattheinitialprice(no),such that(nv>no);whilewedefineaprice-insensitivesubjectasonewhoatthenew discountedpricesselectsfewerCDsthanattheinitialpriceornone(no).

L.Luini,P.Sabbatini/TheJournalofSocio-Economics41 (2012) 255–265 261

Table1

Classificationofsubjectsaccordingtosourceofheterogeneity:varietypreferenceandpricesensitivity(42subjectswhoparticipatedafterthepreliminaryphase).

Sample1(equalprices) Sample2(differentprices)

Varietypreference Varietyadverse Total Varietypreference Varietyadverse Total

Pricesensitive 2 2 4 4 2 6

Priceinsensitive 7 9 16 8 8 16

Total 9 11 20 12 10 22

Table2

Acceptanceandrejectionbyparticipantsinstagetwo.

Session Subjectsin eachsession

PreferD3cash andstop

PreferD9bonus andcontinue

AllCDsD13 FirstchoiceCDD13,othersD9

Accept(Y) Reject(N) Accept(Y) Reject(N)

1 7 1 6 2 1 0 3

2 12 1 11 4 1 2 4

3 12 3 9 4 0 2 3

4 12 5 7 2 1 1 3

5 6 1 5 2 1 0 2

6 8 4 4 0 2 1 1

Total 57 15 42 14 6 6 16

Table3

Buyers,non-buyersandthederivedarcelasticities(distributedaccordingtosamplecharacteristics).

Sample1(equalprices) Sample2(differentprices)

Varietypreference Varietyadverse Total Elasticity Varietypreference Varietyadverse Total Elasticity

Pricesensitive (0;2) (0;2) (0;4) −5.5 (0;4) (0;4) (0;6) −5.50

Priceinsensitive (5;2) (9;0) (14;2) −0.37 (0;8) (6;2) (6;10) −2.50

Total (5;4) (9;2) (14;6) −0.97 (0;12) (6;6) (6;16) −3.14

Elasticity −1.57 −0.55 −0.97 −5.50 −1.38 −3.14

ThefirstnumberwithineachsetofbracketsisthenumberofCDbuyersandthesecondisthenumberwhoprefercash.

thefavoritebutnotfortheirrelevantalternatives(firstchoiceD13, othersD9).Inthiswaywecontrolfortheeffectoftheprice-risefor theunselected(irrelevant)alternativeCDsonthedemandforthe firstchoice.Accordingtotheconventionaltheory,weshouldnot expectanydifferencebetweenthetwogroupsinthereactiontothe higherpriceofthefavoriteCD.Subjectsshouldonlybeconcerned withthepriceoftheirownchoiceandshouldignorethepriceofthe CDstheyarenotinterestedin.Butourexperimentoffersunambigu- ousevidencethatdisconfirmsthisview.Theresultofthisstagecan besummarizedbycomparingthenumbersofbuyersofthefirst choice(Y)withthenumberofnon-buyers(N)inthetwogroups (Table2):

(1)Groupwithequalprice(D13)for firstchoiceandirrelevant alternatives:Y=14,N=6;thatis,their“rejectionrate”is6/20.

(2)Groupfacingdifferentpricesforfirstchoice(D13)andirrele- vantalternatives(D9):Y=6,N=16;thatis,arejectionrateof 16/22.

Thechoicesclearlyshowtherelevanceoftheirrelevantalterna- tives.Thedataunambiguouslyindicatethatwhenthepriceofthe alternativesrisesbythesameamountasthatofthefavoriteCD, consumersarelessreluctanttobuy.Theresultisstrongerstillcon- sideringitsconsistencyin5ofthe6sectionsoftheexperiment.

Asexpected,noonebuysaCDconsidereduninteresting,evenata betterprice.

Inshort,participantsshownaclearpropensitytousetheprice ofsupposedly“irrelevant”productsasabenchmarktogaugethe priceoftheproducttheyareinterestedin.Whenthisreference pricerisesbythesameamountasthefirst-choiceCD,thisisseen aspartofageneralpricetrend,whichweakensthenaturalreaction ofrefusingtobuy.

Wearenowinapositiontomeasurethis“fairnesseffect”exper- imentallyasthedifferenceinthebehaviorof ourtwo samples.

Withoutthefairnesseffect(whenthepriceofirrelevantalterna- tivesalsorises),demandshrinksby30%,²⁴givingaprice-elasticity ofdemandof−0.97(Table3).Withthefairnesseffect(whenonly thepriceoffirstchoiceisraised)demanddecreasesbyafurther 42%,²⁵implyinganelasticityof−3.14.Ourresultissimilartothat ofAndersonandSimester(2008),whoalsofindthattheunfairness effect²⁶ismorerelevantthanthestandardeffectofapriceincrease.

Theexperimentalsessionsconfirmourmainpoint:

Result1. Peopletendtoresistapriceincreaseinsofarastheyuseas areferencetheunchangedpriceforsimilarbutnon-substitutegoods.

Thisisexactlyinlinewithourpredictionthatthesubjectswillexhibit reference-price behavior:thepriceof aproductthat isnotpartof thepreference setneverthelessinfluencesthedecision torejectthe purchase.

6.2. Asecondaryresult

Weobtainadditionalinformationonoursubjects’behaviorby controllingforthesourcesofheterogeneity:varietypreferenceand pricesensitivity.Thisanalysisconfirmsouraprioriexpectations ontherelevanceofprice-sensitivity,butitalsorevealssomeunex- pectedoutcomesassociatedwithvarietypreference.

24Percentageofrejectionsinthe“sameprice”group.

25Percentageofrejectionsintheothergrouplesstheformerpercentage.

26InDaskalopoulou(2008)themeasureofoverallfairnessisdifferentfromprice fairnessandservicefairnessbecauseofthedifferentdegreesoffairnessascribedto eachspecificseller;inourwork,thepriceofalltheothernon-substitutesentersthe subject’ssenseofpriceunfairnessinthesameway.