Fairness Regulation of Prices in Competitive Markets

• 成果类型: Article
• 署名作者: Yang, Zongsen; Fu, Xingyu; Gao, Pin; Chen, Ying-Ju
• 署名单位: The Chinese University of Hong Kong, Shenzhen; University of New South Wales Sydney; Hong Kong University of Science & Technology
• 刊物名称: M&SOM-MANUFACTURING & SERVICE OPERATIONS MANAGEMENT
• ISSN/ISSBN: 1523-4614
• DOI: 10.1287/msom.2022.0552
• 发表日期: 2024
• 页码: 1897-1917
• 关键词: loyalty penalty; price fairness regulation; COMPETITION; collusion; socially responsible operations

摘要

Problem definition : The loyalty penalty refers to a pricing strategy where companies charge higher prices to loyal customers for exploitation while offering lower prices to nonloyal customers for attraction. To address this unfair business practice, various regulatory agencies, such as the Competition and Markets Authority and the Financial Conduct Authority in the United Kingdom, have proposed or implemented regulations aimed at promoting fairness in pricing. In this study, we analyze the impact of such regulations on both firms and consumers. Methodology/results : We develop a stylized model to investigate duopoly competition in two symmetric markets, where consumers exhibit loyalty to different firms in each market. The regulatory intervention mandates that the price difference between the two markets, set by each firm, must not exceed a certain threshold. Our analysis reveals an intriguing interaction between market competition and price fairness regulation. When competition is intense, fairness regulation can alleviate cutthroat competition between firms, resulting in Pareto improvements compared with a scenario with no regulation. On the other hand, when competition is weak, fairness regulation can further enhance firms' existing monopoly power, potentially leading to collusive high prices that are detrimental to consumers and society. We also consider several extensions to enrich our findings, including fairness regulation on relative price discounts, asymmetric markets, and a two-pronged policy regulating the price gap and price cap. Managerial implications : Our study reveals the economic consequences of price fairness regulations; firms can benefit by pricing fairly, but well-intended fairness requirements may have adverse effects on consumers.