Culture, Relationship Norms, and Dual Entitlement

Culture, Relationship Norms, and Dual Entitlement Abstract According to the dual entitlement principle, consumers find it fair for firms to price asymmetrically to cost changes—that is, for firms to increase prices when costs increase but maintain prices when costs decrease. However, a meta-analysis reveals asymmetric pricing is less prevalent in collectivistic (vs. individualistic) countries (study 1). We propose a fairness-based explanation, demonstrating that interdependent consumers in collectivistic cultures perceive asymmetric pricing to be less fair than do independent consumers in individualistic cultures (studies 2, 4, and 5). We attribute this cultural variation to culture-specific relationship norms. Specifically, we argue that while the practice of asymmetric pricing is consistent with the exchange norms among independent consumers that emphasize self-interest pursuit, it is inconsistent with the communal norms among interdependent consumers mandating firm benevolence. Supporting this argument, we find that (a) directly manipulating communal (vs. exchange) norms yields similar differences in fairness perceptions that mimic those due to culture (study 3), (b) the cultural differences are mediated by the communal mandate for firm benevolence (study 4), and (c) the cultural differences are mitigated when a firm frames asymmetric pricing as benevolent (study 5). We conclude by discussing the theoretical and managerial implications of these findings. dual entitlement, culture, relationship norms, price fairness, asymmetric pricing, benevolence Traditional economic models of firm’s pricing behaviors are typically premised on the notion of profit maximization. In their pioneering work, however, Kahneman, Knetsch, and Thaler (1986a, 1986b) introduced fairness as another important consideration in pricing decisions. According to the principle of dual entitlement (DE), buyers are entitled to a reference price and sellers are entitled to a reference profit; that is, firms and buyers are entitled to profit and price terms, respectively, that are established by a relevant precedent or reference transaction. As a result, it is fair for firms to increase prices when costs increase (to protect firms’ entitlement to a reference profit) and to maintain prices when costs decrease (because maintaining prices does not violate the consumers’ entitlement to a reference price). This pricing practice, termed as asymmetric pricing, is commonly observed in the market. For example, in the United States hikes in airline fuel surcharges of up to $500 for a round-trip ticket were implemented quickly after an increase in fuel costs, but have not come back down after the reduction in fuel costs (Mouawad and Clark 2014). Similar phenomena exist in multiple other industries as well (e.g., financial, Bayer and Ke 2011; retailing, Peltzman 2000; import/export, Chew 2015), and DE has been used to explain the prevalence of such pricing practices. DE has been a cornerstone of behavioral pricing research, and subsequent research has built upon Kahneman et al.’s pioneering work to examine motivational and cognitive determinants of price fairness (Bolton, Warlop, and Alba 2003; Campbell 1999, 2007; Haws and Bearden 2006), as well as the consequences of price fairness for consumers and firms (for a review, see Xia, Monroe, and Cox 2004). However, research is scant on the generalizability of DE across culture—surprisingly so, given that DE is proposed as a principle that “governs community standards of fairness” between firms and consumers (Kahenman et al. 1986a, 729), and such standards would logically be influenced by societal norms of relationship engagement that could vary by culture. The present research addresses this gap in the literature by examining cultural variations in the generalizability of the dual entitlement principle as a function of self-construal and the affiliated relationship norms. Specifically, we document systematic cultural differences in the endorsement of DE as reflected in the fairness perceptions of asymmetric pricing. We argue that while the practice of asymmetric pricing is consistent with the exchange norms among independent consumers that emphasize self-interest pursuit, it is inconsistent with the communal norms among interdependent consumers mandating firm benevolence. Across an analysis of secondary data and a series of lab experiments, we provide empirical evidence for the cultural differences, the proposed underlying mechanism, and boundary conditions. Our findings make important contributions to the DE and cross-cultural literature. First, this research is among the first to examine the universality of the widely accepted dual entitlement principle, which has been established as a pillar of behavioral pricing research. We conduct a systematic examination of cultural differences in the endorsement of DE, to shed light on whether and how this “community standard” varies by culture. We find that firms in collectivistic (vs. individualistic) cultures are less likely to price asymmetrically to cost changes and propose a fairness-based explanation for this cultural variation, challenging the generalizability of DE across culture. In doing so, we answer Bonnet and Villas-Boas’s (2016) call for an understanding of the causes, and shed light on the “theoretical puzzle” (Peltzman 2000, 493), of the practice of asymmetric pricing. Second, our research provides evidence not only for cultural differences in the endorsement of DE, but also for its underlying processes and boundary role of culture-specific relationship norms. This enriches our understanding of when and why cultural differences in consumer response to asymmetric pricing exist. In addition, studying asymmetric pricing through the theoretical lens of relationship norms (Clark and Mills 1979, 1993) answers Xia et al.’s (2004) call for further investigations of the role of social norms in understanding price fairness perceptions, and adds to the extant marketing research on relationship norms that has examined their implications for consumer-brand relationships and product valuations (Aggarwal 2004; Aggarwal and Law 2005; Aggarwal and Zhang 2006; Heyman and Ariely 2004). Our identification of a particular aspect of communal norms—that is, the mandate for firm benevolence—as a key driver of the cultural differences contributes to a more nuanced understanding of relationship norms. Third, we also contribute to the culture and pricing literature beyond DE at a broader level. Though there has been substantial research on how cultural differences may affect consumers’ reactions to various branding and marketing communication strategies, research on culture and pricing is scant. Given that pricing is one of the most important tools available to marketers, Ng and Lee (2015) called for more research in this area. Building on prior research examining cultural differences in consumer response to revenue management pricing (Kimes and Wirtz 2003) and dynamic pricing (Bolton, Keh, and Alba 2010), we are among the first to examine how culture may affect pricing in response to cost changes and how fairness may provide a behavioral underpinning for cultural differences in firm pricing strategies. In doing so, our findings provide managerially actionable guidance on how pricing strategies need to be adapted to suit different global markets and to mitigate unfairness perceptions arising from asymmetric pricing. DUAL ENTITLEMENT Consumer information processing and decision making are heavily influenced by the existence of reference points (Kahneman and Tversky 1979; Thaler 1985). Reference points in the marketplace are determined by salient reference transactions, such as current market situations (e.g., posted price, prevailing wages, competitor’s prices) or historical prices and profits. These reference points, in turn, systematically affect consumer fairness perceptions (Bolton et al. 2003; Haws and Bearden 2006; Kahneman et al. 1986a, 1986b). According to the dual entitlement (DE) principle, while consumers are entitled to their reference prices, firms are entitled to their reference profits. To test DE, researchers frequently examine how consumers react to two separate pricing actions: increasing prices when costs increase and maintaining prices when costs decrease. In a series of studies, Kahneman et al. (1986a, 1986b) provide evidence that consumers deem it fair for a seller to 1) increase its price when its costs increase, in order to protect the seller’s entitlement to a reference profit, and 2) maintain its price when its costs decrease, because doing so does not violate the buyer’s entitlement to a reference price. For example, the majority of respondents judged it fair for a grocer to increase its price when the wholesale price of lettuce increased, and judged it fair for a furniture factory to maintain its price when costs decreased (Kahneman et al. 1986a). Interestingly, Kahneman et al.’s (1986a) account of dual entitlement entails a firm-centric argument and predicts the practice of asymmetric pricing. Specifically, since firms are the ones who set prices and invest in the pricing process (Dutta, Zbaracki, and Bergen 2003), a firm has the right to “protect its profits at transactors’ expense” (Kahneman et al. 1986a, 730) by raising prices when costs increase, and is also entitled to increase its profit by maintaining prices when costs decrease. In other words, fairness considerations according to DE entitle a firm to a fixed profit even if it means a higher price for consumers, or a larger profit for the firm as long as that does not increase the price for consumers. Consequently, “it is fair for prices and profits to only ever increase, because it is consistent with this norm of fairness for sellers to pass on cost increases and not cost decreases” (Kalapurakal, Dickson, and Urbany 1991, 789). Fair pricing practice is thus firm-centric and asymmetric, with no downward risk for the firm and only downward risk for the consumers. In this sense, DE provides a rationale for why firms can engage in asymmetric price response to cost changes (i.e., “asymmetric pricing”).1 DE ACROSS CULTURE Dual entitlement was proposed as a principle that “governs community standards of fairness” between firms and consumers (Kahenman et al. 1986a, 729). Although the endorsement of DE was found to hold across different types of sellers (e.g., retailers vs. wholesalers, Kahneman et al. 1986b) and different reasons for the cost change (e.g., cheaper supply vs. increased efficiency, Kahneman et al. 1986b), and was obtained from both consumers (Kahneman et al. 1986a, 1986b; Urbany, Madden, and Dickson 1989) and managers (Gorman and Kehr 1992), the status of the principle as the community standard of fairness has been challenged. For example, Kalapurakal et al. (1991) criticized Kahneman et al.’s conclusion based on the argument that a more appropriate test of DE should involve a simultaneous consideration of how firms pass through cost increases and cost decreases. Under such circumstances, they found more support for several other cost-based, symmetric price response practices—for example, complete pass-through of both cost increases and decreases (i.e., cost-plus) or zero pass-through of both (i.e., buffering)—than for DE (see also Dickson and Kalapurakal 1994). In a similar vein, Novoseltsev and Warlop (2002) provide evidence that fairness perceptions follow DE only when consumers have no information about the firm’s historical profit. In effect, this work raises questions about the generalizability of DE. Another challenge to the generalizability of DE is the fact that most of the empirical evidence in support of this principle was obtained in North America. To the best of our knowledge, research has not yet systematically examined the extent to which consumers in different cultures endorse DE. However, there is anecdotal evidence that the practice of asymmetric pricing may vary with culture. For example, whereas hikes in airline fuel surcharges attributed to cost increases were kept intact in the United States after reductions in fuel costs (Wall Street Journal 2015), similar surcharges were revoked in Japan (Bloomberg.com 2016) and the Philippines (Agcaoili 2015). Such evidence hints at the existence of cultural differences in the endorsement of DE and is consistent with extant findings in the cross-cultural literature that point to differences in community or social norms across countries and cultures (Shen, Wan, and Wyer 2011; Triandis 2001a, 2001b). If norms governing social interactions vary systematically with culture, the endorsement of DE as a community standard of fairness may not be universal. Indeed, there is research suggesting that price fairness perceptions are not monolithic but may vary as a function of culture-driven differences. While research in organizational behavior has largely focused on the consequences of fairness as a function of culture (Brockner et al. 2005; see Li and Cropanzano 2009 for a review and meta-analysis), limited research has examined cultural differences in fairness perception itself. For example, Kimes and Wirtz (2003) observed that revenue management pricing practices (e.g., when restaurants charge different prices for lunch/dinner, weekday/weekend) were perceived as less fair by Asian consumers than American or European consumers. Likewise, Bolton et al. (2010) investigated cultural differences in how consumers react to price comparisons (e.g., paying a higher price than another consumer) that arise due to heightened concerns about loss of “face” (i.e., status earned in a social network). These findings suggest that fairness perceptions for asymmetric pricing may be culture-specific—as we propose and investigate in the present research. Self-Construal and DE Voluminous research in psychology and marketing has documented the important roles that culture plays in affecting consumer information processing, perceptions, and choice (Aaker and Lee 2001; Buchan, Croson, and Johnson 2004; Chen, Ng, and Rao 2005; Lalwani and Shavitt 2013; Maddux et al. 2010; Ng and Houston 2006; Shen, Wan, and Wyer 2011; Zhang and Shrum 2009). Among the myriad dimensions along which cultures are purported to vary, individualism/collectivism (at the societal level) or corresponding independence/interdependence (at the individual level) is arguably the most widely used distinction (Hofstede 1980; Markus and Kitayama 1991). Although not without its critics (Brewer and Chen 2007; Oyserman, Coon, and Kemmelmeier 2002; Shavitt et al. 2006), the distinction in cultural research robustly ascribes higher interdependence and lower independence to collectivistic than individualistic cultures. Cultural differences in self-construal are of focal interest in the present research due to their implications for social relationships. Interdependent self-construal is defined largely by social connectedness and includes social norms such as the duty to maintain communal harmony. In contrast, independent self-construal defines the self in terms of individual autonomy rather than social connectedness (Hofstede 1980; Triandis 2001a). Due to these defining characteristics, independent and interdependent self-construal evokes different relationship norms; indeed, an emphasis on exchange versus communal relationship norms is one of the key defining attributes of individualistic (with dominant independent self-construal) versus collectivistic (with dominant interdependent self-construal) cultures (Triandis 1995, 1996, 2001a, 2001b; Triandis and Gelfand 1998).2 The key distinction between the exchange and communal relationships lies in the rules or norms governing the giving and receiving of benefits in the relationship (i.e., the give-and-take). Specifically, while an exchange relationship is characterized by each party in the relationship looking after its own self-interest, a communal relationship is characterized by concern for others in the relationship (Aggarwal 2004; Clark and Mills 1979, 1993; Mills and Clark 1982). As a result, interdependents governed by communal norms are often expected to show concern for others, and such norms in turn become the benchmark against which other social members’ behaviors are judged. In contrast, pursuing one’s own self-interest is an important part of exchange norms that governs the interactions among independents (Ferraro, Pfeffer, and Sutton 2005; Miller 1999). Given the aforementioned cultural differences in self-construal and the corresponding relationship norms, we propose that the dual entitlement principle will not receive universal endorsement, as the firm’s pursuit of self-interest in practicing asymmetric pricing should be differentially acceptable to consumers as a function of culture-specific norms. Indeed, the principle of dual entitlement is based on the premise of the firm’s pursuit of self-interest. As Kahneman et al. (1986a) point out, while both parties in a transaction are entitled to their reference terms, the principle allows the firm’s interest to take precedence over that of consumers, as the firm has the right to “protect its profits at transactors’ expense” (Kahneman et al. 1986a, 730). This notion—that one party may pursue its own goals at the expense of the other—seems consistent with the exchange norms of individualistic cultures that emphasize self-interest pursuit. Therefore, independent consumers should find it acceptable for a firm to pursue its own self-interest by pricing asymmetrically. However, a firm’s self-interest pursuit at the expense of consumers when it practices asymmetric pricing is inconsistent with the communal norms of interdependent consumers in collectivistic cultures. As discussed earlier, a defining feature of a communal relationship is its mandate of concern for others, whereby both parties should “have a high degree of motivation to be responsive to the other’s needs” (Harvey and Wenzel 2001, 14). The mandate of concern for others is a “two-way street” and applies to both parties in a communal relationship, with a focal partner showing concern for the other party and expecting the other party to show concern for him/her as well. Thus, individuals in communal relationships are not less selfish than those in exchange relationships, a misunderstanding specifically addressed in Clark, Dubash, and Mills (1998). Since the firm is the party who sets prices and invests in the pricing process (Dutta, Zbaracki, and Bergen 2003), fairness perceptions of asymmetric pricing among interdependent consumers should be formed based on whether the firm fulfills the communal norm mandating concern for others. As a result, although they may accept the firms’ need to increase prices when costs increase, interdependent consumers governed by communal norms would expect the firm to take care of others when costs decrease. If this is the case, then asymmetric pricing—which makes salient the pursuit of self-interest by the firm at the expense of consumers—violates communal norms that require the firm to show concern for others. Prior research has shown that perceived violation of norms tends to elicit negative reactions (McGraw, Tetlock, and Kristel 2003) and damage fairness perceptions (Gershoff, Kivetz, and Keinan 2012). Accordingly, interdependent consumers governed by communal norms should judge asymmetric pricing as relatively less fair than independent consumers governed by exchange norms. (Likewise, stated at the societal level, asymmetric pricing should be perceived as less fair in collectivistic vs. individualistic cultures.) We therefore predict that: H1: Interdependent consumers will perceive asymmetric pricing to be less fair than independent consumers. Hypothesis 1 is our foundational hypothesis and provides a test of the generalizability of the principle of dual entitlement as a community standard of fairness across culture. According to hypothesis 1, the endorsement of DE will be weaker among interdependent consumers than among independent consumers, which we test by assessing cultural differences in consumer fairness perceptions for asymmetric pricing. Relationship Norms and the Role of Firm Benevolence According to our argument so far, the cultural differences postulated in hypothesis 1 should be driven by the prevalence of different relationship norms. In particular, while the practice of asymmetric pricing is consistent with exchange norms of self-interest pursuit among independent consumers, it violates communal norms among interdependent consumers mandating a firm’s concern for others, and that is why interdependent consumers consider asymmetric pricing unfair. The communal mandate of showing concern for others is based on a consideration of others’ needs without expecting repayment (Aggarwal 2004; Clark and Mills 1979, 1993; Mills and Clark 1982). Indeed, previous research has shown that individuals in communal relationships are more likely to track each other’s needs in order to help each other, and feel worse with a refusal to help (Clark et al. 1987; Williamson and Clark 1989). In this sense, the communal norm mandating concern for others resembles the notion of benevolence that reflects one’s interest in others’ welfare without consideration of benefits to oneself (Hume 1738/2003). While benevolence has been studied mostly in interfirm relations (Kumar, Scheer, and Steenkamp 1995; Mayer, Davis, and Schoorman 1995; Siguaw, Simpson, and Baker 1998), recent research has started to examine its role in consumer behavior (Chernev and Blair 2015; White 2005). Hence, we argue that, within the context of a consumer’s relationship with a firm, the communal norm mandating a firm’s concern for others corresponds to a mandate of firm benevolence. In making this argument, it is imperative to distinguish the target toward whom the firm shows concern (i.e., the community vs. customers)—and we expect that communal and exchange norms will differ in the extent to which they mandate concern for the community versus customers. Specifically, concern for customers is a routine part of a firm’s business operation, and both communal and exchange consumers might hold relationship norms mandating concern for customers as part of fulfilment of the buyer-seller transaction (Baggozi 1975; Kohli and Jaworski 1990; Kotler 1980). In comparison, showing concern for the community focuses more on responding to others’ needs and less on generating benefits for the firm itself. Previous research has found that both managers and consumers tend to believe that community concern shows benevolence to others more than it benefits a firm itself (Bolton and Mattila 2015; Chernev and Blair 2015; Yoon et al. 2006) and, although not devoid of strategic intent (Ellen, Webb, and Mohr 2006; Vlachos et al. 2009), community concern emphasizes benefits to others and de-emphasizes benefits to the firm (Drumwright 1996).3 Hence, communal (vs. exchange) norms will be more likely to mandate concern for the community but may not be more likely to mandate concern for customers; in consequence, consumers who hold communal (vs. exchange) norms will be more sensitive to violations of norms mandating community concern but may not be more sensitive to whether a firm shows customer concern. Looked at another way, community concern (with an emphasis on benefiting others over the firm) can be viewed as reflecting firm benevolence to a greater degree than customer concern (which benefits both the firm and others) and thereby aligning more readily with communal norms mandating firm benevolence. Consequently, interdependent (vs. independent) consumers hold a communal norm mandating firm benevolence toward the community, and perceive asymmetric pricing that violates this norm as less fair. In contrast, showing concern for customers is consistent with both communal and exchange norms and therefore cannot explain the proposed cultural differences. We therefore propose that cultural differences in fairness perceptions for asymmetric pricing will be driven by the communal norm mandating firm benevolence as reflected in community concern but not in customer concern. Accordingly, H2: The cultural differences in the fairness perceptions of asymmetric pricing proposed in hypothesis 1 will be mediated by the communal norm among interdependent consumers mandating firm benevolence as reflected in community concern, but not in customer concern. If the cultural differences in the fairness perceptions of asymmetric pricing are indeed driven by perceptions of this pricing practice as violating the communal norm mandating firm benevolence, then firms should be able to frame asymmetric pricing as benevolent via community concern to mitigate the cultural differences (i.e., moderation of process; Spencer, Zanna, and Fong 2005). That is, framing asymmetric pricing to reflect community concern should enhance fairness perceptions among interdependent consumers (who are guided by the communal norm mandating firm benevolence); in contrast, independent consumers do not hold the communal norm and therefore should be relatively unaffected by such framing. As a result, the cultural differences in fairness perceptions should be mitigated if asymmetric pricing is framed to reflect firm benevolence via community concern. Further, we note that framing asymmetric pricing to reflect customer concern should enhance fairness perceptions among all consumers to similar degrees (because of its salient benefits to the customers), but may reflect firm benevolence to a lesser degree. Therefore, the cultural differences should not be mitigated if asymmetric pricing is framed to show customer concern. Accordingly, H3: The cultural differences in the fairness perceptions of asymmetric pricing proposed in hypothesis 1 should be mitigated when asymmetric pricing is framed as benevolent via community concern but not customer concern. Empirical support for hypotheses 2 and 3 would provide evidence for the critical role of communal norms, specifically the role of the communal norm among interdependent consumers mandating firm benevolence toward the community (rather than customers), in driving the cultural differences in fairness perceptions. EMPIRICAL OVERVIEW We conduct multiple studies to test our theorizing. Study 1 examines firms’ real-world pricing practices across countries to demonstrate that the prevalence of asymmetric pricing correlates with collectivism-individualism—a finding that is consistent with the cultural differences proposed in hypothesis 1. We then test hypothesis 1 by directly examining consumer fairness perceptions for asymmetric pricing via a) a cross-country comparison in study 2A, b) priming self-construal in study 2B, and b) measuring individual differences in self-construal in study 2C. Together, these studies provide evidence for the causal role of self-construal in consumer fairness response to asymmetric pricing (and help rule out other cultural differences). Given this evidence of robustness for hypothesis 1, we then turn our investigation to the underlying role of relationship norms in driving the cultural differences. Study 3 provides preliminary evidence for the proposed mechanism underlying the cultural differences by manipulating norms and documenting effects on fairness that mimic those of culture. Studies 4 and 5 provide direct evidence for the underlying mechanism by manipulating self-construal and showing that the cultural differences are (a) mediated by the communal norm mandating firm benevolence toward the community (rather than customers; hypothesis 2), and (b) mitigated when asymmetric pricing is framed as benevolent via community (rather than customer) concern (hypothesis 3). Together, these studies provide converging evidence for cultural differences in price fairness perceptions within the context of DE that are driven by the communal norm among interdependent consumers mandating firm benevolence. Figure 1 provides an organizing framework for our empirical work. FIGURE 1 View largeDownload slide ORGANIZING FRAMEWORK FIGURE 1 View largeDownload slide ORGANIZING FRAMEWORK STUDY 1: AN ANALYSIS OF ASYMMETRIC PRICING ACROSS COUNTRIES The primary objective of study 1 is to provide preliminary evidence for hypothesis 1 by examining firms’ real-world pricing practices across countries. If interdependent consumers perceive asymmetric pricing to be less fair than do independent consumers, then consumers in more collectivistic cultures should find it less fair for firms to price asymmetrically—and this pricing practice should therefore be less prevalent in those cultures. To test this possibility, we conduct a meta-analysis of existing evidence for asymmetric pricing practice across countries. Although such data are necessarily correlational in nature, this investigation sheds preliminary light on evidence of asymmetric pricing practices that is consistent with cultural differences in the endorsement of DE (hypothesis 1). Data Our data consists of 67 observations from 56 articles that examined asymmetric pricing in the gasoline market between 1994 and 2013. The articles were identified through an extensive search of the Web of Science database with appropriate keywords (i.e., price/pricing asymmetry, asymmetric pricing/price adjustment, and gasoline). We additionally searched Google Scholar for other published and unpublished articles to compile the data. (A list of articles is available from the authors.) The dependent variable is the presence of statistically significant asymmetry coded from each individual article. A continuous measure of asymmetry is not used, as in our data only 40% of the observations reported F-statistics, a pattern similar to Frey and Manera (2007). We relied on Hofstede’s individualism-collectivism score (http://geert-hofstede.com/countries.html) as a measure of self-construal. Analysis As expected, the presence of asymmetry is correlated with individualism-collectivism (λ = .29, p < .05), but not with any other cultural measures (p > .10). As a robustness check on this result, we conducted different binary logit models that varied the use of control variables, which included: i) Hofstede’s other cultural measures (e.g., power distance belief, masculinity, uncertainty avoidance, pragmatism, and indulgence), ii) data characteristics (e.g., how asymmetry was measured), iii) variables reflecting gasoline market conditions (e.g., gas consumption per capita), and iv) differences in economic development (e.g., GDP). Regardless of the model used, the presence of asymmetry remains correlated with individualism-collectivism. Full details of the measures and results can be found in the web appendix. Therefore, our examination of variations in asymmetric pricing suggests that firm decisions to price asymmetrically in response to cost changes varies systematically across countries in a manner consistent with hypothesis 1. In particular, we find that asymmetric pricing by firms is less prevalent in collectivistic (vs. individualistic) countries—an effect that is quite robust to the inclusion of variables that control for the effects of other cultural dimensions, economic development, measurement and other data features, and product-market conditions. These results, though correlational in nature, are consistent with our prediction that fairness perceptions for asymmetric pricing should be lower in collectivistic cultures (hypothesis 1). STUDY 2: CULTURAL DIFFERENCES IN ENDORSEMENT OF DE The primary objective of study 2 is to formally test hypothesis 1, by using a cross-country comparison (study 2A), priming self-construal within a culture (study 2B), and measuring individual differences in self-construal (study 2C). As a benchmark to test the proposed cultural differences, in these studies we also included two additional experimental conditions that correspond to the two components of asymmetric pricing: increasing prices when costs increase (cipi) and maintaining prices when costs decrease (cdps). The cultural differences proposed in hypothesis 1 are less likely to emerge for each component of asymmetric pricing, as in these situations the asymmetry in price response is not transparent and it is ambiguous whether each pricing action, in isolation, is consistent with relationship norms because the give-and-take in the relationship is not salient. Accordingly, we predict an interaction between culture and pricing such that interdependent consumers in collectivistic cultures (vs. independent consumers in individualistic cultures) judge asymmetric pricing as less fair, but the cultural differences should emerge to a lesser extent when the two components of asymmetric pricing are judged separately. Study 2A: Cross-Country Comparisons Study 2A compares fairness perceptions between two countries: the United States, representing an individualistic culture, and Singapore, representing a collectivistic culture (Hofstede 1980). Although heavily influenced by both Eastern and Western cultures (and providing a population within which we can prime culture as we do later in study 2B; Chen et al. 2005), Singaporean consumers are chronically collectivistic, with the same low score on Hofstede’s individualism-collectivism measure as China (i.e., 20), as compared to the United States, which has a score of 91. According to hypothesis 1, we predict that fairness perceptions will be lower in Singapore (vs. the United States) under asymmetric pricing, but as mentioned above we also expect the cultural differences to be weaker for its components (i.e., cipi and cdps). Method The study was a 2 (culture: individualistic, collectivistic) × 3 (pricing: asymmetric, cipi, cdps) between-subject design. Fifty-four undergraduate business students in a major US university and 60 undergraduate business students in a major university in Singapore participated in this study for partial course credit. Participants in each country were randomly assigned to one of the three pricing conditions and read the following scenario adapted from Kahneman et al. (1986a, 1986b), with pricing conditions (cdps/cipi/asymmetric pricing) shown in square brackets: You shop for groceries at a convenience store. The store usually sells lettuce at $1.50 per head. [Some time ago, due to a decrease in the transportation cost, the wholesale price of lettuce was decreased by $0.20. However, the store did not change its price for the lettuce. / Recently, the transportation cost increased, raising the wholesale price of lettuce by $0.20. The store increased its price for the lettuce by $0.20. / both] Participants then rated fairness of the store’s pricing practice on a seven-point scale (with endpoints “unfair/fair”). Participants also rated purchase intentions by indicating on a seven-point scale the extent to which they would continue shopping at this store (with endpoints “unlikely/likely”). The stimulus was identical for the two countries, except that “$” was replaced by “Sing$” in Singapore to make it clear that the price was in the local currency. Results ANOVA of fairness revealed a main effect of culture (F(1, 108) = 18.22, p < .001) and pricing (F(2, 108) = 10.54, p < .001), qualified by a significant interaction (F(2, 108) = 5.20, p < .01).4 Planned simple effects tests revealed lower fairness judgments in Singapore than in the United States for asymmetric pricing (Mcollectivist_asymmetric pricing = 2.10 vs. Mindividualist_asymmetric pricing = 4.22, F(1, 108) = 35.27, p < .001), but not for its components (Mcollectivist_cipi = 4.25 vs. Mindividualist_cipi = 4.72, F(1, 108) = 1.75, p > .10; Mcollectivist_cdps = 3.35 vs. Mindividualist_cdps = 3.83, F(1, 108) = 1.83, p > .10). As illustrated in figure 2, these results indicate that price fairness perceptions are lower for collectivists (Singaporeans) than individualists (Americans) under asymmetric pricing but not its components. (The component pricing conditions also rule out the possibility that cultural differences are emerging due to mere differences in price sensitivity or product preferences across country.) FIGURE 2 View largeDownload slide FAIRNESS AS A FUNCTION OF CULTURE AND PRICING (STUDY 2A) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. FIGURE 2 View largeDownload slide FAIRNESS AS A FUNCTION OF CULTURE AND PRICING (STUDY 2A) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. Looked at another way, the fairness of cipi and cdps can be used as a baseline against which we can compare the fairness when asymmetric pricing is judged. Comparing against cipi, fairness perceptions of asymmetric pricing declined more in the collectivistic culture (Mcollectivist_asymmetric pricing = 2.10 vs. Mcollectivist_cipi = 4.25; F(1, 108) = 28.20, p < .01) than in the individualistic culture (Mindividualist_asymmetric pricing = 4.22 vs. Mindividualist_cipi = 4.72, F(1, 108) = 1.37, p > .10). A similar pattern emerges when we compare asymmetric pricing against cdps (Mcollectivist_asymmetric pricing = 2.10 vs. Mcollectivist_cdps = 3.35, F(1, 108) = 9.49, p < .01; Mindividualist_asymmetric pricing = 4.22 vs. Mindividualist_cdps = 3.83, F(1, 108) = 1.37, p > .10).5 ANOVA on purchase intention revealed a similar two-way interaction (F(2,108) = 5.03, p < .01), and a mediation analysis (Hayes 2012, model 8, with 5,000 bootstrap resamples) showed that fairness mediated the interaction between culture and pricing on purchase intention (a × b = .61, 95% CI = .17 ∼ 1.41 for the indirect path). Together, these results reveal cross-culture differences in price fairness perceptions (and, in turn, behavioral intentions) consistent with hypothesis 1, and provide a behavioral account for the results in study 1. Study 2B: Priming Self-Construal Country comparisons can be confounded in many ways (e.g., price differences, product preferences), though the null effect in the component (cipi and cdps) conditions helps rule out this possibility. Nevertheless, to provide stronger causal evidence we conducted another study to examine the effects of culture on consumer fairness perceptions through a priming technique. Specifically, we prime culture among Singaporean participants who, at the societal level, are chronically collectivistic but also heavily influenced by Western, individualistic cultures. A priming approach rules out potential confounds in comparing across countries and has ample precedent in the literature (Chen et al. 2005; Hong and Chiu 2001; Hong et al. 2000; Ng and Houston 2006). We expect to replicate the results of study 2A by showing that priming interdependent (vs. independent) self-construal reduces fairness perceptions for asymmetric pricing but not for each of its components. Method The study was a 2 (self-construal: independence, interdependence) × 3 (pricing: asymmetric, cipi, cdps) between-subject design. A total of 158 undergraduate business students at a large university in Singapore participated in this study for partial course credit. We primed self-construal among Singaporean participants using collages of pictures and symbols. Participants were first exposed to a collage consisting of either American or Chinese cultural symbols (e.g., the Statue of Liberty and Marilyn Monroe vs. the Great Wall and the Monkey King). These collages reflect individualistic and collectivistic cultures and are established primes of independent and interdependent self-construal, respectively (Hong et al. 2000). Participants were asked to view the pictures carefully and were told that they would be asked to recall these pictures on the next page. After the recall task, participants then completed an ostensibly unrelated task. Participants read the same stimuli as in study 2A (with prices in “Sing$” in all conditions) and were asked to judge the fairness of the firm’s pricing policy on three seven-point scales (anchored by “very unfair/very fair,” “not at all just/just,” and “unreasonable/reasonable”; Bolton et al. 2010).6 Results ANOVA of fairness (α = .94) revealed a main effect of pricing (F(2, 150) = 46.32, p < .001), qualified by the expected interaction with self-construal priming (F(2, 150) = 3.58, p < .05); the main effect of self-construal was NS (F(1, 150) = 2.53, p > .10). Planned contrasts for the interaction effect revealed lower fairness judgments of asymmetric pricing when interdependence (vs. independence) was primed (Minterdependent_asymmetric pricing = 2.63 vs. Mindependent_asymmetric pricing = 3.62, F(1, 150) = 10.14, p < .01); fairness judgments of each pricing component did not differ due to priming (Minterdependent_cipi = 5.15 vs. Mindependent_cipi = 5.05, F(1, 150) = .12, p > .10; Minterdependent_cdps = 3.51 vs. Mindependent_cdps = 3.46, F(1, 150) = .03, p > .10). These results replicate study 2A and provide converging evidence for hypothesis 1 (figure 3). FIGURE 3 View largeDownload slide FAIRNESS AS A FUNCTION OF SELF-CONSTRUAL AND PRICING (STUDY 2B) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. FIGURE 3 View largeDownload slide FAIRNESS AS A FUNCTION OF SELF-CONSTRUAL AND PRICING (STUDY 2B) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. Study 2C: Measuring Self-Construal at the Individual Level While the results of the first two studies are supportive of the cultural differences in hypothesis 1 via a cross-country comparison and by priming culture, to provide converging evidence that the cultural differences are due to self-construal (vs. some other related cultural variables), we conducted a follow-up study that measured self-construal at the individual level. We focused on interdependence (Singelis 1994) because the cultural differences are theorized to be driven by the perceptions among interdependent consumers of asymmetric pricing as violating their norm-based expectations. Method The study employed a two-factor design, with pricing (asymmetric, cipi, cdps) being manipulated and interdependent self-construal being measured at the individual level. A total of 185 undergraduate business students from a major US university participated in this study for partial course credit. In an initial task, all participants were asked to respond to five items measuring interdependence drawn from Singelis (1994).7 The items included: “My happiness depends on the happiness of those around me,” “I respect people who are modest about themselves,” “I will sacrifice my self-interest for the benefit of the group I am in,” “I often have the feeling that my relationships with others are more important than my own accomplishments,” and “I feel my fate is intertwined with the fate of those around me” (on seven-point scales anchored by “strongly disagree/strongly agree”). After an unrelated filler task, participants read one of three pricing stimuli, with pricing conditions (cipi/cdps/asymmetric pricing) shown in square brackets: Imagine the following situation: Grove Pharmacy is a local pharmacy. Most customers at Grove Pharmacy have good drug coverage as part of their health insurance. Grove Pharmacy is determining the prices for its products and services. [When costs (e.g., rent, overhead) increase, the pharmacy passes on those costs to customers by increasing its prices. For example, the price paid by customers for a prescription would rise by 10% when costs increase 10%. / When costs (e.g., rent, overhead) decrease, the pharmacy maintains its prices. For example, the price paid by customers for a prescription would remain the same when costs decrease by 10%. / both] Participants then judged the fairness of the firm’s pricing practice on the same three questions as before. As a measure of behavioral intentions, participants were asked “How likely would you be to… Go to this pharmacy? Recommend this pharmacy to others?” and rated likelihood on 11-point scales (corresponding to 0–100% anchored by “very unlikely/very likely”). Results To test hypothesis 1, we analyzed fairness (α = .91) as a function of pricing, interdependence (α = .62), and their interaction. The results, summarized in table 1, show a significant interaction (F(2, 179) = 3.07, p < .05); the main effects were NS (F(2, 179) = 1.91, p > .10 for pricing; F(1, 179) = .10, p > .10 for interdependence).8 As expected, fairness perceptions decreased with interdependence for asymmetric pricing (b = –.55, t = 2.20, p < .05); fairness perceptions were unaffected by interdependence for the two components (b = .28, t = .93, p > .10 for cipi, b = .42, t = 1.27, p > .10 for cdps). Table 1 Fairness as a Function of Interdependent Self-Construal and Pricing (Study 2C) Pricing N Fairness Behavioral intention asymmetric pricing 61 3.63 (1.28) 4.96 (2.10) b* = –.55 (.25) b* = –1.01 (.42) cipi 66 4.50 (1.56) 5.81 (2.31) b = .28 (.30) b = .54 (.44) cdps 58 4.00 (1.32) 5.42 (2.37) b = .42 (.33) b = .76 (.59) Pricing N Fairness Behavioral intention asymmetric pricing 61 3.63 (1.28) 4.96 (2.10) b* = –.55 (.25) b* = –1.01 (.42) cipi 66 4.50 (1.56) 5.81 (2.31) b = .28 (.30) b = .54 (.44) cdps 58 4.00 (1.32) 5.42 (2.37) b = .42 (.33) b = .76 (.59) NOTES.—Table reports cell means and coefficients for interdependence (with standard deviations in brackets). cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. * different from zero (p < .05). Table 1 Fairness as a Function of Interdependent Self-Construal and Pricing (Study 2C) Pricing N Fairness Behavioral intention asymmetric pricing 61 3.63 (1.28) 4.96 (2.10) b* = –.55 (.25) b* = –1.01 (.42) cipi 66 4.50 (1.56) 5.81 (2.31) b = .28 (.30) b = .54 (.44) cdps 58 4.00 (1.32) 5.42 (2.37) b = .42 (.33) b = .76 (.59) Pricing N Fairness Behavioral intention asymmetric pricing 61 3.63 (1.28) 4.96 (2.10) b* = –.55 (.25) b* = –1.01 (.42) cipi 66 4.50 (1.56) 5.81 (2.31) b = .28 (.30) b = .54 (.44) cdps 58 4.00 (1.32) 5.42 (2.37) b = .42 (.33) b = .76 (.59) NOTES.—Table reports cell means and coefficients for interdependence (with standard deviations in brackets). cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. * different from zero (p < .05). An analysis of behavioral intentions (λ = .90, p < .001) revealed a similar pattern (see table 1). Moreover, fairness mediated the interaction of pricing and interdependence on behavioral intentions (Hayes 2012, model 8, with 5,000 bootstrap resamples, a × b = .87, 95% CI = .12 ∼ 1.67 for the indirect path). These findings provide further support for hypothesis 1. Discussion The results of studies 2A–C together provide a behavioral account for the cross-cultural variations in the prevalence of asymmetric pricing documented in study 1, and support hypothesis 1 concerning cultural differences in fairness perceptions within a dual entitlement context. Specifically, interdependent (vs. independent) self-construal—operationalized via country, manipulated through priming, or measured at the individual level—reduces fairness perceptions under asymmetric pricing. Also as expected, self-construal has little effect on each of the two components of asymmetric pricing, as the asymmetry in give-and-take is not transparent when consumers judge each component separately. While the findings thus far are supportive of the proposed cultural differences in fairness perceptions for asymmetric pricing (hypothesis 1), subsequent studies are designed to provide evidence that the differences are driven by culture-bound relationship norms (hypothesis 2) rather than other variables that might vary by culture. Study 3 provides preliminary evidence by directly manipulating norms to show that the manipulation leads to similar differences in fairness perceptions that mimic the cultural differences documented in studies 2A–C. STUDY 3: RELATIONSHIP NORMS AND DUAL ENTITLEMENT The objective of study 3 is to provide preliminary evidence for our norm-based argument by manipulating relationship norms to demonstrate its effects on fairness perceptions of asymmetric pricing. In effect, we used an experimental-causal-chain design to provide process evidence, following Spencer et al.’s (2005) argument that manipulating the underlying process should produce effects that are similar to manipulating the independent variable. Therefore, if relationship norms drive the cultural differences we have documented in studies 2A–C, then manipulating norms should lead to a similar pattern in fairness perceptions that mimics the cultural differences we documented in studies 2A–C. Specifically, asymmetric pricing should be perceived as less fair under communal (vs. exchange) norms, but as before this difference should weaken when fairness of the two components of asymmetric pricing is judged separately. Method Study 3 employed a 2 (relationship norms: exchange, communal) × 3 (pricing: asymmetric, cipi, cdps) between-subject design. A total of 112 undergraduate business students from a large university in the United States participated in this study for course credit. Relationship norms were manipulated via the established procedures of Aggarwal and Zhang (2006). Specifically, participants read about a hypothetical individual described as following either communal norms (e.g., “Chris is very close to her friends and is always there for them whenever they need her”) or exchange norms (e.g., “she always likes to keep things as even as possible and generally keeps track of her exchanges with others”). A manipulation check asked participants to indicate what the person would do with a bill for a lunch with friends, with the expectation that participants in the communal (exchange) relationship condition are more likely to pay the entire bill (split the bill with their friends), reflecting communal norms emphasizing concern for others (exchange norms emphasizing the pursuit of self-interest). In an ostensibly unrelated task, participants then read a scenario about a pharmaceutical company as follows (shown for the asymmetric pricing condition): Imagine a pharmaceutical company that provides an assortment of products and services in the marketplace. The pharmaceutical company is determining the prices for its products and services. When costs (e.g., rent, overhead) increase, the pharmaceutical company passes on those costs to customers by increasing its prices. When costs decrease, the pharmaceutical company maintains prices. For example, the price of a product would rise by 10% when its costs increase by 10%. However, if costs decline by 10%, the price would remain the same. The stimuli for the cipi and cdps conditions were similar, but mentioned only the pricing practice under cost increase or decrease (but not both). Participants judged the fairness of the firm’s pricing practice using the same three-item measure as before. Manipulation Check Open-ended responses were coded into paying the entire bill versus splitting the lunch bill and analyzed via a binary logistic regression. The analysis revealed a main effect of relationship norm (β = .67, Wald chi-square = 5.30, p < .05); other effects were NS (p > .10). As expected, participants in the communal condition more frequently indicated paying the entire bill compared to those in the exchange relationship (32% > 11%), showing a successful manipulation of relationship norms. Results ANOVA of fairness (α = .94) revealed a main effect of pricing (F(2, 106) = 7.20, p = .001), qualified by the expected interaction with relationship norms (F(2, 106) = 3.55, p < .05); the main effect of relationship norms was NS (F(1, 106) = .04, p > .10). Planned contrasts for the interaction revealed that fairness perceptions were lower in the communal than the exchange condition for asymmetric pricing (Mcommunal_asymmetric pricing = 2.44 vs. Mexchange_asymmetric pricing = 3.44, F(1, 106) = 5.02, p < .05), but not for its components (Mcommunal_cipi = 4.32 vs. Mexchange_cipi = 3.82, F(1, 106) = 1.33, p > .10; Mcommunal_cdps = 3.41 vs. Mexchange_cdps = 3.04, F(1, 106) = .86, p > .10). Hence, manipulating relationship norms produced differences in fairness perceptions of asymmetric pricing that mimic those due to culture (figure 4). FIGURE 4 View largeDownload slide FAIRNESS AS A FUNCTION OF RELATIONSHIP NORMS AND PRICING (STUDY 3) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. FIGURE 4 View largeDownload slide FAIRNESS AS A FUNCTION OF RELATIONSHIP NORMS AND PRICING (STUDY 3) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. Replications We conducted two replications of study 3 to provide evidence for the robustness of our results. In study 3, we adopted the norm prime from Aggarwal and Zhang (2006); they used the lunch-split question both to strengthen the prime and as a manipulation check. They additionally used 13 questions as another manipulation check, whereas study 3 used only the lunch-split question as the manipulation check, leaving open the possibility of an ineffective prime (despite our supportive results). In order to address this issue, in the first replication we again used the same prime but for the manipulation check used Aggarwal and Zhang’s (2006) 13 questions. The study used the same stimuli as in study 2A (with prices in “$” in all conditions). In the second replication, we operationalized communal and exchange relationship norms at the industry level via medical doctors and financial advisors, respectively (based on a pretest). Replicating the results of study 3, both studies found that fairness perceptions were lower under communal (vs. exchange) norms for asymmetric pricing but not for its components. Results on purchase intentions were similar and were mediated by fairness. For details, please see the web appendix. Discussion Study 3 and its replications document differences in fairness perceptions arising from relationship norms that are similar to the cultural differences we observed in studies 2A–C. Whereas fairness of cipi and cdps did not differ as a function of relationship norms, asymmetric pricing was perceived as less fair under communal versus exchange relationship norms. These results (i.e., norm = > fairness), when combined with the result in study 2B that interdependents (vs. independents) were more likely to endorse the communal (vs. exchange) norm (i.e., culture = > norm; see footnote 6), provide evidence that the cultural differences documented in studies 2A–C are due to culture-bound relationship norms (i.e., culture = > norm = > fairness). Our last two studies provide further evidence for cultural differences in fairness response to asymmetric pricing by manipulating self-construal (interdependent vs. independent). In addition and more important, we provide direct evidence for the mediating role of communal norms mandating firm benevolence by (1) measuring it to demonstrate mediation of the cultural differences (i.e., hypothesis 2) in study 4, and (2) framing asymmetric pricing as benevolent to show moderation of the cultural differences (i.e., hypothesis 3) in study 5. STUDY 4: FIRM BENEVOLENCE AS THE MEDIATING NORM The primary objective of study 4 is to provide further evidence for the role of communal norms in accounting for the cultural differences in fairness perceptions for asymmetric pricing. Recall our argument that interdependent consumers are guided by communal norms that drive the cultural differences. In particular, hypothesis 2 proposes that the cultural differences in asymmetric pricing should be mediated by the communal norm among interdependent consumers for firm benevolence as reflected in community concern. In comparison, expectations of customer concern are not unique to communal norms and therefore will not mediate the cultural differences. Study 4 therefore tests hypothesis 2 by assessing the extent to which interdependent consumers base their fairness perception on the norm mandating firm benevolence via community concern but not customer concern (i.e., testing the proposed process using a measurement-of-mediation design; Spencer et al. 2005). Method The study was a two-group design that primed independent versus interdependent self-construal. A total of 89 undergraduate business students from a large US university completed the study for partial course credits. Interdependence/independence was manipulated via an established pronoun task (i.e., counting we/I pronouns in a passage; Brewer and Gardner 1996). Following the priming task, participants responded to a manipulation check question indicating the extent to which they were thinking about themselves or others (on a seven-point scale with endpoints “Totally about myself/Totally about others”; Brewer and Gardner 1996). Afterward, in an ostensibly unrelated task, participants were requested to read a news article describing asymmetric pricing, as follows: Recently, a news reporter on campus reported the pricing practice of a coffee shop that you might frequently visit. It was reported that last year, the coffee shop increased the price of a cup of coffee by $1.00. However, when costs of sugar and coffee beans decreased this year, the stall owners did not change its price. After reading the news article, participants indicated their fairness perceptions using the same three-item measure as before. To assess the proposed underlying process for the fairness differences, participants indicated the extent to which they agreed “that a firm should take care of its community/customers” (each on a seven-point scale with endpoints “Strongly disagree/Strongly agree”). The two measures appeared on separate pages; their order was counterbalanced and had no effect. Note that measuring both community and customer concern and showing mediation via the former but not the latter allowed us to test hypothesis 2 and helped rule out demand associated with directly measuring firm benevolence.9 Pretest To verify that community concern is more likely to reflect firm benevolence than is customer concern, a pretest asked 45 participants to rate their perceptions of community and customer concern on seven-point scales as benefiting others, showing concern for others, benefiting the firm, and showing concern for the firm (in randomized order). We constructed a measure of firm benevolence by subtracting the average of the latter two items (reflecting concern for the firm; λ = .77, p < .001) from the average of the first two items (reflecting concern for others; λ = .71, p < .001). As expected, we found that taking care of the community was rated as more benevolent than taking care of customers was (2.00 vs. .22, t(44) = 5.61, p < .001). In addition, taking care of the community was perceived as showing more concern for others than for the firm (2.00 > 0, t(44) = 7.37, p < .001), whereas taking care of the customers was perceived as showing equal concern for others and the firm (.22 vs. 0, t(44) = .93, p >.10). This result is consistent with our theorizing that community concern (which benefits others more than the firm) reflects the communal norm of firm benevolence more so than customer concern (which benefits both the firm and others). Therefore, the cultural differences in fairness perceptions should be mediated by consumers’ endorsement of the norm mandating firm benevolence via community concern but not customer concern (hypothesis 2). Results As a manipulation check of self-construal, ANOVA indicated that independents thought more about themselves than interdependents (Mindependence = 3.11 vs. Minterdependence = 4.32, p < .001), supporting the manipulation of self-construal. Supporting hypothesis 1 and replicating the results of our earlier studies, the main effect of self-construal on fairness (α = .85) was significant: asymmetric pricing was perceived as less fair when interdependence (vs. independence) was primed (Mindependence = 4.33 vs. Minterdependence = 3.59, F(1, 88) = 8.87, p < .01). To test what drove the difference in fairness perceptions, we next examined participants’ endorsement of norms mandating community and customer concern. As predicted, endorsement of community concern was higher when interdependence (vs. independence) was primed (Mindependence = 4.64 vs. Minterdependence = 5.29, F(1, 88) = 6.44, p < .05), and mediated the effect of self-construal on fairness perceptions (Hayes 2012, model 4, with 5,000 bootstrap resamples, a × b = –.26, 99% CI = –.66 ∼ −.01). In contrast, endorsement of customer concern was similarly high for the two self-construal conditions (Mindependence = 5.62 vs. Minterdependence = 5.66, F < 1), and failed to mediate fairness perceptions (p > .10). These results support hypothesis 2. Discussion Study 4 uses an established cultural priming manipulation of self-construal and demonstrates that interdependent consumers judge asymmetric pricing less fair than do independent consumers, providing converging evidence for the cultural differences proposed in hypothesis 1. Additionally, we find support for hypothesis 2: the difference in fairness perceptions is mediated by consumers’ endorsement of relationship norms mandating firm benevolence via community (vs. customer) concern. That is, interdependent and independent consumers differ in their perceptions of the firm’s obligation toward the community (but not its customers), and this difference in firm benevolence norms is what drives their reactions to asymmetric pricing. Given this evidence for the mediating role of the communal norm mandating firm benevolence via community concern among interdependent consumers, the final study provides further evidence for the underlying mechanism by framing asymmetric pricing in terms of firm benevolence via community concern and showing its moderation effect on the cultural differences (hypothesis 3). STUDY 5: BENEVOLENCE FRAMING The objective of study 5 is to test hypothesis 3 and provide converging evidence that the communal norm mandating firm benevolence is the key driver of the cultural differences. We do so using a moderation-of-process design by manipulating the process and showing its moderation effect (Spencer et al. 2005). Specifically, we investigate whether cultural differences in fairness perceptions are mitigated when asymmetric pricing is framed as benevolent toward the community. In line with hypothesis 3, we expect that framing asymmetric pricing as benevolent via community concern will enhance fairness perceptions more so among interdependent (but not independent) consumers who hold communal norms mandating firm benevolence that are otherwise violated by asymmetric pricing, thus mitigating the proposed cultural differences. On the other hand, the cultural difference should not be mitigated when a firm frames asymmetric pricing as showing customer concern as it benefits both the firm and others and thus is less likely to reflect firm benevolence. If supported, these results also establish an important boundary condition on the cultural differences we have documented so far. Method The study adopted a 2 (self-construal: independent, interdependent) × 3 (framing: none, community concern, customer concern) between-subject design. A total of 190 undergraduate business students from a major university in Singapore participated in this study for partial course credit. The self-construal priming and manipulation check were the same as in study 4. Afterward, in an ostensibly unrelated study, participants were asked to read a newspaper article describing asymmetric pricing as follows, with the framing manipulation shown in square brackets [community/customer/none]: Imagine the following situation: Recently, you read a newspaper report about the pricing practice of a coffee shop. It was reported that last year, the coffee shop increased the price of a cup of coffee by $0.20 as costs of sugar and coffee beans had gone up by $0.20. However, when costs of sugar and coffee beans decreased this year, the stall owners did not change its price. [When interviewed, the owner of the coffee shop said that they did not reduce the price as they are donating the money earned from the price increase to needy families in the neighborhood. / When interviewed, the owner of the coffee shop said that they did not reduce the price as they are using the money to provide better services, such as tissue napkins and sanitizers to their customers (i.e., patrons like you). / OMIT]. The report talked about how consumers feel about this pricing practice. After reading the article, participants indicated whether they felt the pricing policy was fair using the same three-item measure as before. Pretest Using measures similar to the pretest of study 4, we found support for the manipulation of community/customer benevolence. Specifically, analyzing the difference score between the two questions that measured concern for others (λ = .72, p < .001) and the two questions that measured concern for the firm (λ = .82, p < .001), we found that donating to needy families in the neighborhood was rated as more benevolent than providing better services to customers was (1.97 vs. –.13, t(44) = 5.89, p < .001). In addition, donating to needy families in the neighborhood was perceived as showing more concern for others than for the firm (1.97 > 0, t(44) = 6.50, p < .001), whereas providing better services to customers was perceived as showing equal concern for others and the firm (–.13 vs. 0, t(44) = .53, p > .10). These results support the manipulation and align with that of study 4: community concern, which benefits others more than the firm, reflects greater benevolence than customer concern, which benefits both the firm and others. Therefore, the cultural differences in the fairness perceptions should be mitigated when a firm frames asymmetric pricing as showing community concern, but not customer concern (figure 5). FIGURE 5 View largeDownload slide FAIRNESS AS A FUNCTION OF SELF-CONSTRUAL AND FRAMING OF ASYMMETRIC PRICING (STUDY 5) FIGURE 5 View largeDownload slide FAIRNESS AS A FUNCTION OF SELF-CONSTRUAL AND FRAMING OF ASYMMETRIC PRICING (STUDY 5) Results As in study 4, the self-construal manipulation was successful, with independents thinking more about themselves than interdependents (Mindependence = 3.11 vs. Minterdependence = 3.99, p < .001). ANOVA of fairness (α = .94) revealed a main effect of framing (F(2, 184) = 4.91, p < .01), qualified by the expected interaction with self-construal (F(2, 184) = 4.70, p = .01); the main effect of self-construal was NS (F < 1). To interpret the omnibus interaction and to test hypothesis 3, we examined two planned interaction contrasts. First, we compared fairness perceptions in the control versus customer-framing conditions. Consistent with theorizing, we find i) a main effect of self-construal such that interdependents judged asymmetric pricing as less fair than did independents (Mindependence = 4.13 vs. Minterdependence = 3.58, F(1, 184) = 5.80, p = .02), supporting hypothesis 1; ii) a main effect of framing such that framing asymmetric pricing as showing customer concern enhanced fairness perceptions, presumably due to the salient benefits of providing better services to all consumers (Mcontrol = 3.55 vs. Mcustomer = 4.22, F(2, 184) = 8.55, p < .01); and (iii) the interaction between self-construal and framing (none vs. customer) was NS (F < 1), indicating that the customer-framing does not mitigate the cultural differences in fairness perceptions (consistent with hypothesis 3). Second, we compared fairness perceptions in the community-framing condition against the other conditions (combining control and customer, given the null interaction reported above). Consistent with theorizing, we find a significant interaction contrast between self-construal and the community framing (F(1, 184) = 9.21, p < .01). To understand the nature of this interaction contrast, we conducted simple contrasts as a follow-up. In the condition combining control and customer framing, asymmetric pricing was perceived as less fair by interdependents than independents (Minterdependence_control&customer = 3.58 vs. Mindependence_control&customer = 4.13, F(1, 184) = 5.80, p = .02). In contrast, we observed the opposite difference when asymmetric pricing was framed as showing community concern (Minterdependence_community = 4.44 vs. Mindependence_community = 3.74, F(1, 184) = 5.80, p < .05). This pattern of results is consistent with hypothesis 3. Discussion Study 5 conceptually replicates the effect of culture on asymmetric pricing by manipulating self-construal. As a further test of robustness, we conducted a single paper meta-analysis (McShane and Bockenholt 2017) using the asymmetric pricing conditions in studies 2A and 2B, study 4, and the control and customer conditions in study 5. (Excluding the customer-framing condition in study 5 produced the same results.) Supporting hypothesis 1 and consistent with the results in each individual study, the meta-analysis revealed a significant effect of self-construal (n = 310, estimate = .99, SE = .29, t = 3.41, p < .001), with interdependent consumers judging asymmetric pricing as less fair than independent consumers. This analysis testifies to the robustness of our results. We additionally find that framing asymmetric pricing in terms of firm benevolence moderates the cultural differences. Specifically, we find that showing community concern reflects firm benevolence to a greater extent and that framing asymmetric pricing as showing concern for the community mitigates the cultural differences: interdependent consumers respond less favorably to asymmetric pricing but more favorably when asymmetric pricing is framed as consistent with the communal norm mandating firm benevolence (to the extent that it actually reverses the cultural differences). In contrast, showing customer concern reflects firm benevolence to a lesser degree, and framing asymmetric pricing as showing concern for customers enhances price fairness perceptions among all consumers but does not mitigate the cultural differences. These results support hypothesis 3. Together, the findings of studies 4 and 5 (1) further support the cultural differences in fairness perceptions of asymmetric pricing (hypothesis 1); (2) provide converging evidence for the proposed underlying mechanism due to the communal norm mandating firm benevolence (hypotheses 2 and 3) through a measurement-of-mediation design (study 4) and moderation-of-process design (study 5; Spencer et al. 2005); and (3) identify community (vs. customer) concern (i.e., the target of benevolence) as an important distinction in relationship norms and, as a result, community (but not customer) concern as a theoretically and pragmatically relevant boundary condition for the observed cultural differences. GENERAL DISCUSSION The present research examines cultural differences in price fairness perceptions within the context of dual entitlement. Specifically, we theorize that interdependent (vs. independent) consumers will judge asymmetric pricing as less fair because it violates communal norms. Consistent with our theoretical argument, we find that: i) asymmetric pricing by firms is less prevalent in collectivistic countries (study 1); ii) fairness differences emerge for asymmetric pricing as a function of the proposed cultural differences—operationalized via country, made salient through priming, and measured or manipulated at the individual level (studies 2A–2C, 4 and 5); iii) fairness differences emerge for communal versus exchange norms (manipulated directly) that mimic those due to culture (study 3 and its follow-ups); iv) the cultural differences in fairness are mediated by the communal norm among interdependent consumers mandating firm benevolence (studies 4 and 5); and v) hence, the cultural differences in fairness can be reversed when asymmetric pricing is framed as benevolent via community concern (study 5). These results provide robust evidence for hypotheses 1–3, including the underlying psychological process (the communal norm mandating firm benevolence, which is established via measurement and moderation), as well as theoretically and managerially relevant boundary conditions (community but not customer concern). Theoretical Contributions Dual Entitlement and Asymmetric Pricing The present research extends Kahneman et al.’s (1986a, 1986b) pioneering work on the dual entitlement principle by examining its robustness and boundary conditions. Dual entitlement is a cornerstone of research on behavioral pricing. Asymmetric pricing provides a context for testing the core aspects of dual entitlement (the firm’s entitlement to its reference profit and the consumer’s entitlement to a reference price). Our research contributes to this literature by demonstrating that consumer endorsement of the principle of dual entitlement is not monolithic but varies systematically with culture and pricing actions. These findings raise questions about the generalizability of dual entitlement as a “community standard of fairness” (Kahenman et al. 1986a, 729). Our research also contributes a behavioral account for the practice of asymmetric pricing and its cultural variation. If consumers endorse dual entitlement, firms may be able to respond asymmetrically to cost changes (Kahneman et al. 1986a, 1986b). Indeed, this pricing practice has been documented for a wide variety of product markets (Bayer and Ke 2011; Bonnet and Villas-Boas 2016; Borenstein, Cameron, and Gilbert 1997; Hannan and Berger 1991; Jackson 1997; Karrenbrock 1991; Neumark and Sharpe 1992; Peltzman 2000; Pick, Karrenbrock, and Carmen 1991), and yet it is poorly understood. The present research answers Bonnet and Villas-Boas (2016) and Peltzman’s (2000) calls for more research on causes of this pricing practice by providing a behavioral explanation based on consumer fairness perceptions. As our work demonstrates, endorsement of dual entitlement and firm adoption of this pricing practice vary with culture and associated relationship norms in a predictable manner. These results thus take a step toward understanding the potential consumer behavioral underpinning of this pricing practice. Relationship Norms Our research also adds to the literature regarding the critical importance of relationship norms in understanding consumer behavior. Various types of social relationships have been proposed in the literature. For instance, Adler and Kwon (2002) make the distinction between market relations and social relations. Fiske (1992) distinguishes among four types of relationship models: community sharing, equality matching, authority ranking, and market pricing. The distinction between communal and exchange relationships (Clark and Mills 1993) investigated in the current research aligns with Adler and Kwon’s (2002) social and market relationships, and Fiske’s (1992) community sharing and market pricing models, respectively. While Fiske’s framework provides a more nuanced perspective on social relationships, we focus on communal and exchange relationships because (1) they are located at the ends of the continuum in Fiske’s model and have the potential to trigger the most extreme reactions if violated (McGraw et al. 2003); and (2) they are linked to interdependent and independent self-construal, respectively (Triandis 2001a, 2001b; Triandis and Gelfand 1998) and lend themselves to an examination of cultural differences in asymmetric pricing. How self-construal and other aspects of culture (e.g., power distance belief) affect other types of relationships (e.g., equality matching, authority ranking) is worthy of further investigation. Additionally, we extend the existing marketing literature on communal and exchange relationships in the context of buyer-seller relationships (Scott, Mende, and Bolton 2013), consumer-brand relationships (Aggarwal and Law 2005; Aggarwal 2004), and product valuations (Aggarwal and Zhang 2006; Heyman and Ariely 2004) to the domain of pricing. Our work demonstrates how norms governing the buyer-seller relationship underlie the cultural differences in fairness perceptions of asymmetric pricing—and answers the call for a better understanding of the role of social norms in shaping price fairness perceptions (Xia et al. 2004). Our work also highlights a critical and yet relatively understudied aspect of communal relationships, specifically communal norms mandating firm benevolence (i.e., concern for others based on their needs without expecting repayment; Aggarwal 2004; Clark and Mills 1993; Mills and Clark 1986). We highlight the importance of the target of benevolence—the community, which fulfills the communal norm, and the customer, which fails to fulfill the norm (because doing so also benefits the firm). This aspect of communal relationships—understanding who the “others” are when communal norms are salient—is important and deserves more attention in the literature. Culture and Pricing Finally, we extend past work by investigating how culture affects the impact of price information, and we contribute to the scant research on the role of culture in price fairness (Bolton et al. 2010; Lalwani and Shavitt 2013). The last decade has witnessed considerable growth in research concerning the impact of culture on consumer decision making and consumption behavior—yet there is limited research on how culture affects consumer response to pricing tactics adopted by firms (Ng and Lee 2015). We provide not only evidence of systematic differences in firm pricing practice across culture (study 1) but also a behavioral account for these cultural differences (studies 2–5). These differences in consumer fairness perceptions based on cost-price relationships open up a range of additional questions regarding how consumers respond to the give-and-take in pricing across culture, as well as the foundational principles of behavioral pricing (such as DE). Managerial Implications The present research also contributes to a better understanding of managerial pricing practices, as well as relationship marketing. First, marketers routinely face decisions on whether to pass on cost increases and decreases through pricing. Our research suggests that such decisions need to take into account cultural differences in social norms. As we demonstrate, such relationship norms differ across culture and also vary naturally by industry. As our evidence attests, firms may wish to avoid pricing asymmetrically in response to cost changes in collectivistic cultures, in certain industries where communal norms are prevalent (e.g., medical), or when such norms are emphasized in their marketing activities (e.g., in Olive Garden’s “When you are here, you are family” or State Farm’s “Like a good neighbor” ad campaigns). Our results suggest that, when engaging in asymmetric pricing, marketers can enhance fairness perceptions among interdependent consumers by mitigating concerns that the firm is not fulfilling communal norms. Asymmetric price response to cost changes makes salient the firm’s pursuit of self-interest at the expense of consumers and is therefore perceived to be unfair. However, firm benevolence can mitigate unfairness perceptions—but only when implemented appropriately. For example, showing concern for and providing services to the community when practicing asymmetric pricing can enhance price fairness perceptions among interdependent consumers; in contrast, showing concern for and providing better services to customers do not. Our work also points to a downside of cost transparency in the marketplace. While cost information has traditionally been closely guarded by firms, the practice of transparent pricing, with the free and readily available information on the internet, “has been gaining hold among a select group of retailers” for which “customers can see exactly what they are paying for and how much the manufacturer is charging them on top of its cost of production” (Groves 1998; Krugman 2008; Sinha 2000; Stevenson 2017). Although the benefits of cost transparency have been touted (Gerdeman 2014; Mohan, Buell, and John 2015), our research suggests it could be detrimental to firms when cost-price relationships make asymmetric pricing salient to consumers. Finally, our research has important implications for companies who are actively engaged in creating relationships with their customers. In today’s market, many firms attempt to create communal relationships with their customers, by claiming to treat them like best friends or even family members (e.g., Harley-Davidson, Avery, Fournier, and Wittenbraker 2014; “SC Johnson, A Family Company,” Phelps 2014). One unique insight from the current research is that these companies may face a downside in the marketplace inasmuch as consumers will be less accepting of asymmetric pricing and, more generally, other practices that violate the communal norms mandating firm benevolence. While creating a communal relationship with consumers may increase their loyalty (Malone and Fiske 2013), our results provide a cautionary note to firms if customer-relationship management changes the relative emphasis on communal norms and corresponding expectations regarding firm benevolence. Limitations and Future Research Our research has several limitations that present opportunities for future research. An important question for future research concerns the components of asymmetric pricing. While asymmetric pricing was the focal point of our investigation, we note that fairness perceptions tended to differ between the two components of asymmetric pricing, with cipi being perceived as more fair than cdps in the majority of our studies. These results are largely consistent with Kahneman et al.’s (1986a) original finding that a larger proportion of participants in their study supported cipi (79%) than cdps (53%). Although Kahneman et al. (1986a) interpreted their results as evidence for endorsement of dual entitlement, our findings coupled with a closer examination of their work may raise questions about this interpretation. Consumers may be willing to endorse the firm’s entitlement to protect an existing level of profit (i.e., preserving the status quo profit by raising prices when costs increase, as in cipi)—but the relatively low level of endorsement of cdps suggests that consumers are less willing to endorse an increase in firm profits that maintains the consumers’ entitlement to a reference price. Given consumers’ tendency toward profit aversion (Bhattacharjee, Dana, and Baron 2017; Lee, Bolton, and Winterich 2017), future research to understand how consumers respond to firms’ profit taking (e.g., in cdps) is needed. Future research should also compare asymmetric pricing to other pricing practices. In a study (omitted for brevity), we investigated two additional pricing strategies: cost-plus (i.e., 100% pass-through of cost increases and decreases) and buffering (i.e., 0% pass-through of cost increases and decreases), which both reflect a firm’s symmetric pricing response to cost changes. We find that both are perceived to be more fair than asymmetric pricing (consistent with Kalapurakal et al. 1991) and that fairness of these two symmetric pricing practices does not differ by culture. Together, these findings beg the question whether DE is indeed a community standard of fairness, and future research is encouraged to assess the robustness of our work and to explore other aspects of Kahneman et al.’s (1986a) pioneering work on dual entitlement. Finally, though our findings answer the call for greater research in the area of culture and pricing, it has addressed only a small slice of a much bigger research area. In addition to asymmetric pricing that is prevalent and fundamental to firm pricing, there are many other pricing tactics used by firms to attract consumers, such as price promotions, everyday low price strategies, and pay as you wish. As yet, we do not know how culture may affect consumers’ susceptibility to these pricing tactics. There is wide scope for future research in this area. Conclusion With the increasing availability of cost information to consumers from the media and the firms themselves (Chew 2015; Gerdeman 2014; Mohan et al. 2015; Sinha 2000; Stevenson 2017), and given trends toward globalization and customization, understanding how different consumer groups view manufacturers and retailers and react to their pricing practices is of central concern to marketing. Focusing on asymmetric pricing, we provide evidence for cultural differences in the fairness perceptions for this prevalent and fundamental pricing practice, its underlying process, and boundary conditions. Our results challenge the universality of Kahneman et al.’s (1986a) pioneering work on dual entitlement, and hopefully will spur more research to understand how marketers can improve pricing decisions vis-à-vis consumer perceptions to garner competitive advantage in the global marketplace. DATA COLLECTION INFORMATION Data for study 1 was collected by the fourth author online in 2014. Data for study 2A was jointly collected by the first and third authors at the University of Miami and the Nanyang Technological University in 2006. Data for study 2B was collected by the third author at the Nanyang Technological University in 2012. Data for study 2C was collected by the second author at the Pennsylvania State University in 2009. Data for study 3 was collected by the first author at the University of Miami in 2007. Data for study 4 was collected by the fifth author at the Texas A&M University in 2017. Data for study 5 was collected by the third author at the Nanyang Technological University in 2017. Data for study 1 was analyzed by the fourth author. Data for studies 2A, 2B, and 3 was analyzed by the first author. Data for study 2C was analyzed by the second author. Data for study 4 was analyzed by the fifth author. Data for study 5 was analyzed by the third author. Data for all studies were analyzed in consultation with the other authors. The first author would like to thank the seminar audience at the University of Texas at Austin for their feedback on an earlier version of the article. The authors also thank the Franco Nicosia ACR Best Competitive Paper Award and the Institute on Asian Consumer Insight at Nanyang Technological University for their financial support, and the JCR review team for their guidance. Supplementary materials are included in the web appendix accompanying the online version of this article. Correspondence: Haipeng (Allan) Chen. Footnotes 1 On the other hand, a firm cannot make more profit by raising its prices, as when demand is temporarily higher or there is a lack of competition; in other words, fairness concerns also act as a constraint on firm pricing actions from a DE-fairness perspective (Kahneman et al. 1986a). 2 For clarity of exposition, our work will refer to cultural differences in independent/interdependent self-construal at the individual level, which align with individualism/collectivism at the societal (or country) level. As shorthand, we will also refer to individuals with an independent/interdependent self-construal (or in individualistic/collectivistic culture) as independents/interdependents. 3 We empirically validate this argument in the pretest for studies 4 and 5. 4 In this and the following studies, we focus on the proposed interaction effect in our analysis. A discussion of main effects is deferred to the General Discussion section. 5 The same patterns emerge in all the other studies. Due to space constraints, we do not present similar analyses for the remaining studies. 6 As expected, we found a significant effect of the self-construal manipulation on a measure of relationship norm adapted from Clark and Mills (1979) such that interdependents (vs. independents) were more likely to endorse the communal (vs. exchange) norm. Details are omitted for brevity. 7 The selection of the items was based on the highest item-to-total correlations with the original 12-item scale in a pretest, given that the reliability of this scale is low, as has been noted in the literature (Singelis 1994). 8 When we dummy-coded asymmetric pricing, its interaction with interdependence continued to hold (F(1, 179) = 4.61, p < .05). The two main effects, the effect of the other pricing dummy, and its interaction with interdependence were NS, p > .10. 9 We did directly measure firm benevolence (“defined as showing concern for others without considering benefit to oneself”) in a study that mimicked the design of study 4, and found that fairness (α = .91) differed between the two self-construal conditions as expected (Mindependence = 4.01 vs. Minterdependence = 3.28, F(1, 42) = 4.20, p < .05) and was mediated by firm benevolence (Hayes 2012, model 4, with 5,000 bootstrap resamples, a × b = –.30, 95% CI = –.83 ∼ –.01). REFERENCES Aaker Jennifer , Lee Angela ( 2001 ), “‘I’ Seek Pleasures and ‘We’ Avoid Pains: The Role of Self-Regulatory Goals in Information Processing and Persuasion,” Journal of Consumer Research , 28 1 , 33 – 49 . Google Scholar CrossRef Search ADS Adler Paul , Kwon Seok-Woo ( 2002 ), “Social Capital: Prospects for a New Concept,” Academy of Management Review , 27 1 , 17 – 40 . 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Published by Oxford University Press on behalf of Journal of Consumer Research, Inc. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Consumer Research Oxford University Press

Culture, Relationship Norms, and Dual Entitlement

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Abstract

Abstract According to the dual entitlement principle, consumers find it fair for firms to price asymmetrically to cost changes—that is, for firms to increase prices when costs increase but maintain prices when costs decrease. However, a meta-analysis reveals asymmetric pricing is less prevalent in collectivistic (vs. individualistic) countries (study 1). We propose a fairness-based explanation, demonstrating that interdependent consumers in collectivistic cultures perceive asymmetric pricing to be less fair than do independent consumers in individualistic cultures (studies 2, 4, and 5). We attribute this cultural variation to culture-specific relationship norms. Specifically, we argue that while the practice of asymmetric pricing is consistent with the exchange norms among independent consumers that emphasize self-interest pursuit, it is inconsistent with the communal norms among interdependent consumers mandating firm benevolence. Supporting this argument, we find that (a) directly manipulating communal (vs. exchange) norms yields similar differences in fairness perceptions that mimic those due to culture (study 3), (b) the cultural differences are mediated by the communal mandate for firm benevolence (study 4), and (c) the cultural differences are mitigated when a firm frames asymmetric pricing as benevolent (study 5). We conclude by discussing the theoretical and managerial implications of these findings. dual entitlement, culture, relationship norms, price fairness, asymmetric pricing, benevolence Traditional economic models of firm’s pricing behaviors are typically premised on the notion of profit maximization. In their pioneering work, however, Kahneman, Knetsch, and Thaler (1986a, 1986b) introduced fairness as another important consideration in pricing decisions. According to the principle of dual entitlement (DE), buyers are entitled to a reference price and sellers are entitled to a reference profit; that is, firms and buyers are entitled to profit and price terms, respectively, that are established by a relevant precedent or reference transaction. As a result, it is fair for firms to increase prices when costs increase (to protect firms’ entitlement to a reference profit) and to maintain prices when costs decrease (because maintaining prices does not violate the consumers’ entitlement to a reference price). This pricing practice, termed as asymmetric pricing, is commonly observed in the market. For example, in the United States hikes in airline fuel surcharges of up to $500 for a round-trip ticket were implemented quickly after an increase in fuel costs, but have not come back down after the reduction in fuel costs (Mouawad and Clark 2014). Similar phenomena exist in multiple other industries as well (e.g., financial, Bayer and Ke 2011; retailing, Peltzman 2000; import/export, Chew 2015), and DE has been used to explain the prevalence of such pricing practices. DE has been a cornerstone of behavioral pricing research, and subsequent research has built upon Kahneman et al.’s pioneering work to examine motivational and cognitive determinants of price fairness (Bolton, Warlop, and Alba 2003; Campbell 1999, 2007; Haws and Bearden 2006), as well as the consequences of price fairness for consumers and firms (for a review, see Xia, Monroe, and Cox 2004). However, research is scant on the generalizability of DE across culture—surprisingly so, given that DE is proposed as a principle that “governs community standards of fairness” between firms and consumers (Kahenman et al. 1986a, 729), and such standards would logically be influenced by societal norms of relationship engagement that could vary by culture. The present research addresses this gap in the literature by examining cultural variations in the generalizability of the dual entitlement principle as a function of self-construal and the affiliated relationship norms. Specifically, we document systematic cultural differences in the endorsement of DE as reflected in the fairness perceptions of asymmetric pricing. We argue that while the practice of asymmetric pricing is consistent with the exchange norms among independent consumers that emphasize self-interest pursuit, it is inconsistent with the communal norms among interdependent consumers mandating firm benevolence. Across an analysis of secondary data and a series of lab experiments, we provide empirical evidence for the cultural differences, the proposed underlying mechanism, and boundary conditions. Our findings make important contributions to the DE and cross-cultural literature. First, this research is among the first to examine the universality of the widely accepted dual entitlement principle, which has been established as a pillar of behavioral pricing research. We conduct a systematic examination of cultural differences in the endorsement of DE, to shed light on whether and how this “community standard” varies by culture. We find that firms in collectivistic (vs. individualistic) cultures are less likely to price asymmetrically to cost changes and propose a fairness-based explanation for this cultural variation, challenging the generalizability of DE across culture. In doing so, we answer Bonnet and Villas-Boas’s (2016) call for an understanding of the causes, and shed light on the “theoretical puzzle” (Peltzman 2000, 493), of the practice of asymmetric pricing. Second, our research provides evidence not only for cultural differences in the endorsement of DE, but also for its underlying processes and boundary role of culture-specific relationship norms. This enriches our understanding of when and why cultural differences in consumer response to asymmetric pricing exist. In addition, studying asymmetric pricing through the theoretical lens of relationship norms (Clark and Mills 1979, 1993) answers Xia et al.’s (2004) call for further investigations of the role of social norms in understanding price fairness perceptions, and adds to the extant marketing research on relationship norms that has examined their implications for consumer-brand relationships and product valuations (Aggarwal 2004; Aggarwal and Law 2005; Aggarwal and Zhang 2006; Heyman and Ariely 2004). Our identification of a particular aspect of communal norms—that is, the mandate for firm benevolence—as a key driver of the cultural differences contributes to a more nuanced understanding of relationship norms. Third, we also contribute to the culture and pricing literature beyond DE at a broader level. Though there has been substantial research on how cultural differences may affect consumers’ reactions to various branding and marketing communication strategies, research on culture and pricing is scant. Given that pricing is one of the most important tools available to marketers, Ng and Lee (2015) called for more research in this area. Building on prior research examining cultural differences in consumer response to revenue management pricing (Kimes and Wirtz 2003) and dynamic pricing (Bolton, Keh, and Alba 2010), we are among the first to examine how culture may affect pricing in response to cost changes and how fairness may provide a behavioral underpinning for cultural differences in firm pricing strategies. In doing so, our findings provide managerially actionable guidance on how pricing strategies need to be adapted to suit different global markets and to mitigate unfairness perceptions arising from asymmetric pricing. DUAL ENTITLEMENT Consumer information processing and decision making are heavily influenced by the existence of reference points (Kahneman and Tversky 1979; Thaler 1985). Reference points in the marketplace are determined by salient reference transactions, such as current market situations (e.g., posted price, prevailing wages, competitor’s prices) or historical prices and profits. These reference points, in turn, systematically affect consumer fairness perceptions (Bolton et al. 2003; Haws and Bearden 2006; Kahneman et al. 1986a, 1986b). According to the dual entitlement (DE) principle, while consumers are entitled to their reference prices, firms are entitled to their reference profits. To test DE, researchers frequently examine how consumers react to two separate pricing actions: increasing prices when costs increase and maintaining prices when costs decrease. In a series of studies, Kahneman et al. (1986a, 1986b) provide evidence that consumers deem it fair for a seller to 1) increase its price when its costs increase, in order to protect the seller’s entitlement to a reference profit, and 2) maintain its price when its costs decrease, because doing so does not violate the buyer’s entitlement to a reference price. For example, the majority of respondents judged it fair for a grocer to increase its price when the wholesale price of lettuce increased, and judged it fair for a furniture factory to maintain its price when costs decreased (Kahneman et al. 1986a). Interestingly, Kahneman et al.’s (1986a) account of dual entitlement entails a firm-centric argument and predicts the practice of asymmetric pricing. Specifically, since firms are the ones who set prices and invest in the pricing process (Dutta, Zbaracki, and Bergen 2003), a firm has the right to “protect its profits at transactors’ expense” (Kahneman et al. 1986a, 730) by raising prices when costs increase, and is also entitled to increase its profit by maintaining prices when costs decrease. In other words, fairness considerations according to DE entitle a firm to a fixed profit even if it means a higher price for consumers, or a larger profit for the firm as long as that does not increase the price for consumers. Consequently, “it is fair for prices and profits to only ever increase, because it is consistent with this norm of fairness for sellers to pass on cost increases and not cost decreases” (Kalapurakal, Dickson, and Urbany 1991, 789). Fair pricing practice is thus firm-centric and asymmetric, with no downward risk for the firm and only downward risk for the consumers. In this sense, DE provides a rationale for why firms can engage in asymmetric price response to cost changes (i.e., “asymmetric pricing”).1 DE ACROSS CULTURE Dual entitlement was proposed as a principle that “governs community standards of fairness” between firms and consumers (Kahenman et al. 1986a, 729). Although the endorsement of DE was found to hold across different types of sellers (e.g., retailers vs. wholesalers, Kahneman et al. 1986b) and different reasons for the cost change (e.g., cheaper supply vs. increased efficiency, Kahneman et al. 1986b), and was obtained from both consumers (Kahneman et al. 1986a, 1986b; Urbany, Madden, and Dickson 1989) and managers (Gorman and Kehr 1992), the status of the principle as the community standard of fairness has been challenged. For example, Kalapurakal et al. (1991) criticized Kahneman et al.’s conclusion based on the argument that a more appropriate test of DE should involve a simultaneous consideration of how firms pass through cost increases and cost decreases. Under such circumstances, they found more support for several other cost-based, symmetric price response practices—for example, complete pass-through of both cost increases and decreases (i.e., cost-plus) or zero pass-through of both (i.e., buffering)—than for DE (see also Dickson and Kalapurakal 1994). In a similar vein, Novoseltsev and Warlop (2002) provide evidence that fairness perceptions follow DE only when consumers have no information about the firm’s historical profit. In effect, this work raises questions about the generalizability of DE. Another challenge to the generalizability of DE is the fact that most of the empirical evidence in support of this principle was obtained in North America. To the best of our knowledge, research has not yet systematically examined the extent to which consumers in different cultures endorse DE. However, there is anecdotal evidence that the practice of asymmetric pricing may vary with culture. For example, whereas hikes in airline fuel surcharges attributed to cost increases were kept intact in the United States after reductions in fuel costs (Wall Street Journal 2015), similar surcharges were revoked in Japan (Bloomberg.com 2016) and the Philippines (Agcaoili 2015). Such evidence hints at the existence of cultural differences in the endorsement of DE and is consistent with extant findings in the cross-cultural literature that point to differences in community or social norms across countries and cultures (Shen, Wan, and Wyer 2011; Triandis 2001a, 2001b). If norms governing social interactions vary systematically with culture, the endorsement of DE as a community standard of fairness may not be universal. Indeed, there is research suggesting that price fairness perceptions are not monolithic but may vary as a function of culture-driven differences. While research in organizational behavior has largely focused on the consequences of fairness as a function of culture (Brockner et al. 2005; see Li and Cropanzano 2009 for a review and meta-analysis), limited research has examined cultural differences in fairness perception itself. For example, Kimes and Wirtz (2003) observed that revenue management pricing practices (e.g., when restaurants charge different prices for lunch/dinner, weekday/weekend) were perceived as less fair by Asian consumers than American or European consumers. Likewise, Bolton et al. (2010) investigated cultural differences in how consumers react to price comparisons (e.g., paying a higher price than another consumer) that arise due to heightened concerns about loss of “face” (i.e., status earned in a social network). These findings suggest that fairness perceptions for asymmetric pricing may be culture-specific—as we propose and investigate in the present research. Self-Construal and DE Voluminous research in psychology and marketing has documented the important roles that culture plays in affecting consumer information processing, perceptions, and choice (Aaker and Lee 2001; Buchan, Croson, and Johnson 2004; Chen, Ng, and Rao 2005; Lalwani and Shavitt 2013; Maddux et al. 2010; Ng and Houston 2006; Shen, Wan, and Wyer 2011; Zhang and Shrum 2009). Among the myriad dimensions along which cultures are purported to vary, individualism/collectivism (at the societal level) or corresponding independence/interdependence (at the individual level) is arguably the most widely used distinction (Hofstede 1980; Markus and Kitayama 1991). Although not without its critics (Brewer and Chen 2007; Oyserman, Coon, and Kemmelmeier 2002; Shavitt et al. 2006), the distinction in cultural research robustly ascribes higher interdependence and lower independence to collectivistic than individualistic cultures. Cultural differences in self-construal are of focal interest in the present research due to their implications for social relationships. Interdependent self-construal is defined largely by social connectedness and includes social norms such as the duty to maintain communal harmony. In contrast, independent self-construal defines the self in terms of individual autonomy rather than social connectedness (Hofstede 1980; Triandis 2001a). Due to these defining characteristics, independent and interdependent self-construal evokes different relationship norms; indeed, an emphasis on exchange versus communal relationship norms is one of the key defining attributes of individualistic (with dominant independent self-construal) versus collectivistic (with dominant interdependent self-construal) cultures (Triandis 1995, 1996, 2001a, 2001b; Triandis and Gelfand 1998).2 The key distinction between the exchange and communal relationships lies in the rules or norms governing the giving and receiving of benefits in the relationship (i.e., the give-and-take). Specifically, while an exchange relationship is characterized by each party in the relationship looking after its own self-interest, a communal relationship is characterized by concern for others in the relationship (Aggarwal 2004; Clark and Mills 1979, 1993; Mills and Clark 1982). As a result, interdependents governed by communal norms are often expected to show concern for others, and such norms in turn become the benchmark against which other social members’ behaviors are judged. In contrast, pursuing one’s own self-interest is an important part of exchange norms that governs the interactions among independents (Ferraro, Pfeffer, and Sutton 2005; Miller 1999). Given the aforementioned cultural differences in self-construal and the corresponding relationship norms, we propose that the dual entitlement principle will not receive universal endorsement, as the firm’s pursuit of self-interest in practicing asymmetric pricing should be differentially acceptable to consumers as a function of culture-specific norms. Indeed, the principle of dual entitlement is based on the premise of the firm’s pursuit of self-interest. As Kahneman et al. (1986a) point out, while both parties in a transaction are entitled to their reference terms, the principle allows the firm’s interest to take precedence over that of consumers, as the firm has the right to “protect its profits at transactors’ expense” (Kahneman et al. 1986a, 730). This notion—that one party may pursue its own goals at the expense of the other—seems consistent with the exchange norms of individualistic cultures that emphasize self-interest pursuit. Therefore, independent consumers should find it acceptable for a firm to pursue its own self-interest by pricing asymmetrically. However, a firm’s self-interest pursuit at the expense of consumers when it practices asymmetric pricing is inconsistent with the communal norms of interdependent consumers in collectivistic cultures. As discussed earlier, a defining feature of a communal relationship is its mandate of concern for others, whereby both parties should “have a high degree of motivation to be responsive to the other’s needs” (Harvey and Wenzel 2001, 14). The mandate of concern for others is a “two-way street” and applies to both parties in a communal relationship, with a focal partner showing concern for the other party and expecting the other party to show concern for him/her as well. Thus, individuals in communal relationships are not less selfish than those in exchange relationships, a misunderstanding specifically addressed in Clark, Dubash, and Mills (1998). Since the firm is the party who sets prices and invests in the pricing process (Dutta, Zbaracki, and Bergen 2003), fairness perceptions of asymmetric pricing among interdependent consumers should be formed based on whether the firm fulfills the communal norm mandating concern for others. As a result, although they may accept the firms’ need to increase prices when costs increase, interdependent consumers governed by communal norms would expect the firm to take care of others when costs decrease. If this is the case, then asymmetric pricing—which makes salient the pursuit of self-interest by the firm at the expense of consumers—violates communal norms that require the firm to show concern for others. Prior research has shown that perceived violation of norms tends to elicit negative reactions (McGraw, Tetlock, and Kristel 2003) and damage fairness perceptions (Gershoff, Kivetz, and Keinan 2012). Accordingly, interdependent consumers governed by communal norms should judge asymmetric pricing as relatively less fair than independent consumers governed by exchange norms. (Likewise, stated at the societal level, asymmetric pricing should be perceived as less fair in collectivistic vs. individualistic cultures.) We therefore predict that: H1: Interdependent consumers will perceive asymmetric pricing to be less fair than independent consumers. Hypothesis 1 is our foundational hypothesis and provides a test of the generalizability of the principle of dual entitlement as a community standard of fairness across culture. According to hypothesis 1, the endorsement of DE will be weaker among interdependent consumers than among independent consumers, which we test by assessing cultural differences in consumer fairness perceptions for asymmetric pricing. Relationship Norms and the Role of Firm Benevolence According to our argument so far, the cultural differences postulated in hypothesis 1 should be driven by the prevalence of different relationship norms. In particular, while the practice of asymmetric pricing is consistent with exchange norms of self-interest pursuit among independent consumers, it violates communal norms among interdependent consumers mandating a firm’s concern for others, and that is why interdependent consumers consider asymmetric pricing unfair. The communal mandate of showing concern for others is based on a consideration of others’ needs without expecting repayment (Aggarwal 2004; Clark and Mills 1979, 1993; Mills and Clark 1982). Indeed, previous research has shown that individuals in communal relationships are more likely to track each other’s needs in order to help each other, and feel worse with a refusal to help (Clark et al. 1987; Williamson and Clark 1989). In this sense, the communal norm mandating concern for others resembles the notion of benevolence that reflects one’s interest in others’ welfare without consideration of benefits to oneself (Hume 1738/2003). While benevolence has been studied mostly in interfirm relations (Kumar, Scheer, and Steenkamp 1995; Mayer, Davis, and Schoorman 1995; Siguaw, Simpson, and Baker 1998), recent research has started to examine its role in consumer behavior (Chernev and Blair 2015; White 2005). Hence, we argue that, within the context of a consumer’s relationship with a firm, the communal norm mandating a firm’s concern for others corresponds to a mandate of firm benevolence. In making this argument, it is imperative to distinguish the target toward whom the firm shows concern (i.e., the community vs. customers)—and we expect that communal and exchange norms will differ in the extent to which they mandate concern for the community versus customers. Specifically, concern for customers is a routine part of a firm’s business operation, and both communal and exchange consumers might hold relationship norms mandating concern for customers as part of fulfilment of the buyer-seller transaction (Baggozi 1975; Kohli and Jaworski 1990; Kotler 1980). In comparison, showing concern for the community focuses more on responding to others’ needs and less on generating benefits for the firm itself. Previous research has found that both managers and consumers tend to believe that community concern shows benevolence to others more than it benefits a firm itself (Bolton and Mattila 2015; Chernev and Blair 2015; Yoon et al. 2006) and, although not devoid of strategic intent (Ellen, Webb, and Mohr 2006; Vlachos et al. 2009), community concern emphasizes benefits to others and de-emphasizes benefits to the firm (Drumwright 1996).3 Hence, communal (vs. exchange) norms will be more likely to mandate concern for the community but may not be more likely to mandate concern for customers; in consequence, consumers who hold communal (vs. exchange) norms will be more sensitive to violations of norms mandating community concern but may not be more sensitive to whether a firm shows customer concern. Looked at another way, community concern (with an emphasis on benefiting others over the firm) can be viewed as reflecting firm benevolence to a greater degree than customer concern (which benefits both the firm and others) and thereby aligning more readily with communal norms mandating firm benevolence. Consequently, interdependent (vs. independent) consumers hold a communal norm mandating firm benevolence toward the community, and perceive asymmetric pricing that violates this norm as less fair. In contrast, showing concern for customers is consistent with both communal and exchange norms and therefore cannot explain the proposed cultural differences. We therefore propose that cultural differences in fairness perceptions for asymmetric pricing will be driven by the communal norm mandating firm benevolence as reflected in community concern but not in customer concern. Accordingly, H2: The cultural differences in the fairness perceptions of asymmetric pricing proposed in hypothesis 1 will be mediated by the communal norm among interdependent consumers mandating firm benevolence as reflected in community concern, but not in customer concern. If the cultural differences in the fairness perceptions of asymmetric pricing are indeed driven by perceptions of this pricing practice as violating the communal norm mandating firm benevolence, then firms should be able to frame asymmetric pricing as benevolent via community concern to mitigate the cultural differences (i.e., moderation of process; Spencer, Zanna, and Fong 2005). That is, framing asymmetric pricing to reflect community concern should enhance fairness perceptions among interdependent consumers (who are guided by the communal norm mandating firm benevolence); in contrast, independent consumers do not hold the communal norm and therefore should be relatively unaffected by such framing. As a result, the cultural differences in fairness perceptions should be mitigated if asymmetric pricing is framed to reflect firm benevolence via community concern. Further, we note that framing asymmetric pricing to reflect customer concern should enhance fairness perceptions among all consumers to similar degrees (because of its salient benefits to the customers), but may reflect firm benevolence to a lesser degree. Therefore, the cultural differences should not be mitigated if asymmetric pricing is framed to show customer concern. Accordingly, H3: The cultural differences in the fairness perceptions of asymmetric pricing proposed in hypothesis 1 should be mitigated when asymmetric pricing is framed as benevolent via community concern but not customer concern. Empirical support for hypotheses 2 and 3 would provide evidence for the critical role of communal norms, specifically the role of the communal norm among interdependent consumers mandating firm benevolence toward the community (rather than customers), in driving the cultural differences in fairness perceptions. EMPIRICAL OVERVIEW We conduct multiple studies to test our theorizing. Study 1 examines firms’ real-world pricing practices across countries to demonstrate that the prevalence of asymmetric pricing correlates with collectivism-individualism—a finding that is consistent with the cultural differences proposed in hypothesis 1. We then test hypothesis 1 by directly examining consumer fairness perceptions for asymmetric pricing via a) a cross-country comparison in study 2A, b) priming self-construal in study 2B, and b) measuring individual differences in self-construal in study 2C. Together, these studies provide evidence for the causal role of self-construal in consumer fairness response to asymmetric pricing (and help rule out other cultural differences). Given this evidence of robustness for hypothesis 1, we then turn our investigation to the underlying role of relationship norms in driving the cultural differences. Study 3 provides preliminary evidence for the proposed mechanism underlying the cultural differences by manipulating norms and documenting effects on fairness that mimic those of culture. Studies 4 and 5 provide direct evidence for the underlying mechanism by manipulating self-construal and showing that the cultural differences are (a) mediated by the communal norm mandating firm benevolence toward the community (rather than customers; hypothesis 2), and (b) mitigated when asymmetric pricing is framed as benevolent via community (rather than customer) concern (hypothesis 3). Together, these studies provide converging evidence for cultural differences in price fairness perceptions within the context of DE that are driven by the communal norm among interdependent consumers mandating firm benevolence. Figure 1 provides an organizing framework for our empirical work. FIGURE 1 View largeDownload slide ORGANIZING FRAMEWORK FIGURE 1 View largeDownload slide ORGANIZING FRAMEWORK STUDY 1: AN ANALYSIS OF ASYMMETRIC PRICING ACROSS COUNTRIES The primary objective of study 1 is to provide preliminary evidence for hypothesis 1 by examining firms’ real-world pricing practices across countries. If interdependent consumers perceive asymmetric pricing to be less fair than do independent consumers, then consumers in more collectivistic cultures should find it less fair for firms to price asymmetrically—and this pricing practice should therefore be less prevalent in those cultures. To test this possibility, we conduct a meta-analysis of existing evidence for asymmetric pricing practice across countries. Although such data are necessarily correlational in nature, this investigation sheds preliminary light on evidence of asymmetric pricing practices that is consistent with cultural differences in the endorsement of DE (hypothesis 1). Data Our data consists of 67 observations from 56 articles that examined asymmetric pricing in the gasoline market between 1994 and 2013. The articles were identified through an extensive search of the Web of Science database with appropriate keywords (i.e., price/pricing asymmetry, asymmetric pricing/price adjustment, and gasoline). We additionally searched Google Scholar for other published and unpublished articles to compile the data. (A list of articles is available from the authors.) The dependent variable is the presence of statistically significant asymmetry coded from each individual article. A continuous measure of asymmetry is not used, as in our data only 40% of the observations reported F-statistics, a pattern similar to Frey and Manera (2007). We relied on Hofstede’s individualism-collectivism score (http://geert-hofstede.com/countries.html) as a measure of self-construal. Analysis As expected, the presence of asymmetry is correlated with individualism-collectivism (λ = .29, p < .05), but not with any other cultural measures (p > .10). As a robustness check on this result, we conducted different binary logit models that varied the use of control variables, which included: i) Hofstede’s other cultural measures (e.g., power distance belief, masculinity, uncertainty avoidance, pragmatism, and indulgence), ii) data characteristics (e.g., how asymmetry was measured), iii) variables reflecting gasoline market conditions (e.g., gas consumption per capita), and iv) differences in economic development (e.g., GDP). Regardless of the model used, the presence of asymmetry remains correlated with individualism-collectivism. Full details of the measures and results can be found in the web appendix. Therefore, our examination of variations in asymmetric pricing suggests that firm decisions to price asymmetrically in response to cost changes varies systematically across countries in a manner consistent with hypothesis 1. In particular, we find that asymmetric pricing by firms is less prevalent in collectivistic (vs. individualistic) countries—an effect that is quite robust to the inclusion of variables that control for the effects of other cultural dimensions, economic development, measurement and other data features, and product-market conditions. These results, though correlational in nature, are consistent with our prediction that fairness perceptions for asymmetric pricing should be lower in collectivistic cultures (hypothesis 1). STUDY 2: CULTURAL DIFFERENCES IN ENDORSEMENT OF DE The primary objective of study 2 is to formally test hypothesis 1, by using a cross-country comparison (study 2A), priming self-construal within a culture (study 2B), and measuring individual differences in self-construal (study 2C). As a benchmark to test the proposed cultural differences, in these studies we also included two additional experimental conditions that correspond to the two components of asymmetric pricing: increasing prices when costs increase (cipi) and maintaining prices when costs decrease (cdps). The cultural differences proposed in hypothesis 1 are less likely to emerge for each component of asymmetric pricing, as in these situations the asymmetry in price response is not transparent and it is ambiguous whether each pricing action, in isolation, is consistent with relationship norms because the give-and-take in the relationship is not salient. Accordingly, we predict an interaction between culture and pricing such that interdependent consumers in collectivistic cultures (vs. independent consumers in individualistic cultures) judge asymmetric pricing as less fair, but the cultural differences should emerge to a lesser extent when the two components of asymmetric pricing are judged separately. Study 2A: Cross-Country Comparisons Study 2A compares fairness perceptions between two countries: the United States, representing an individualistic culture, and Singapore, representing a collectivistic culture (Hofstede 1980). Although heavily influenced by both Eastern and Western cultures (and providing a population within which we can prime culture as we do later in study 2B; Chen et al. 2005), Singaporean consumers are chronically collectivistic, with the same low score on Hofstede’s individualism-collectivism measure as China (i.e., 20), as compared to the United States, which has a score of 91. According to hypothesis 1, we predict that fairness perceptions will be lower in Singapore (vs. the United States) under asymmetric pricing, but as mentioned above we also expect the cultural differences to be weaker for its components (i.e., cipi and cdps). Method The study was a 2 (culture: individualistic, collectivistic) × 3 (pricing: asymmetric, cipi, cdps) between-subject design. Fifty-four undergraduate business students in a major US university and 60 undergraduate business students in a major university in Singapore participated in this study for partial course credit. Participants in each country were randomly assigned to one of the three pricing conditions and read the following scenario adapted from Kahneman et al. (1986a, 1986b), with pricing conditions (cdps/cipi/asymmetric pricing) shown in square brackets: You shop for groceries at a convenience store. The store usually sells lettuce at $1.50 per head. [Some time ago, due to a decrease in the transportation cost, the wholesale price of lettuce was decreased by $0.20. However, the store did not change its price for the lettuce. / Recently, the transportation cost increased, raising the wholesale price of lettuce by $0.20. The store increased its price for the lettuce by $0.20. / both] Participants then rated fairness of the store’s pricing practice on a seven-point scale (with endpoints “unfair/fair”). Participants also rated purchase intentions by indicating on a seven-point scale the extent to which they would continue shopping at this store (with endpoints “unlikely/likely”). The stimulus was identical for the two countries, except that “$” was replaced by “Sing$” in Singapore to make it clear that the price was in the local currency. Results ANOVA of fairness revealed a main effect of culture (F(1, 108) = 18.22, p < .001) and pricing (F(2, 108) = 10.54, p < .001), qualified by a significant interaction (F(2, 108) = 5.20, p < .01).4 Planned simple effects tests revealed lower fairness judgments in Singapore than in the United States for asymmetric pricing (Mcollectivist_asymmetric pricing = 2.10 vs. Mindividualist_asymmetric pricing = 4.22, F(1, 108) = 35.27, p < .001), but not for its components (Mcollectivist_cipi = 4.25 vs. Mindividualist_cipi = 4.72, F(1, 108) = 1.75, p > .10; Mcollectivist_cdps = 3.35 vs. Mindividualist_cdps = 3.83, F(1, 108) = 1.83, p > .10). As illustrated in figure 2, these results indicate that price fairness perceptions are lower for collectivists (Singaporeans) than individualists (Americans) under asymmetric pricing but not its components. (The component pricing conditions also rule out the possibility that cultural differences are emerging due to mere differences in price sensitivity or product preferences across country.) FIGURE 2 View largeDownload slide FAIRNESS AS A FUNCTION OF CULTURE AND PRICING (STUDY 2A) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. FIGURE 2 View largeDownload slide FAIRNESS AS A FUNCTION OF CULTURE AND PRICING (STUDY 2A) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. Looked at another way, the fairness of cipi and cdps can be used as a baseline against which we can compare the fairness when asymmetric pricing is judged. Comparing against cipi, fairness perceptions of asymmetric pricing declined more in the collectivistic culture (Mcollectivist_asymmetric pricing = 2.10 vs. Mcollectivist_cipi = 4.25; F(1, 108) = 28.20, p < .01) than in the individualistic culture (Mindividualist_asymmetric pricing = 4.22 vs. Mindividualist_cipi = 4.72, F(1, 108) = 1.37, p > .10). A similar pattern emerges when we compare asymmetric pricing against cdps (Mcollectivist_asymmetric pricing = 2.10 vs. Mcollectivist_cdps = 3.35, F(1, 108) = 9.49, p < .01; Mindividualist_asymmetric pricing = 4.22 vs. Mindividualist_cdps = 3.83, F(1, 108) = 1.37, p > .10).5 ANOVA on purchase intention revealed a similar two-way interaction (F(2,108) = 5.03, p < .01), and a mediation analysis (Hayes 2012, model 8, with 5,000 bootstrap resamples) showed that fairness mediated the interaction between culture and pricing on purchase intention (a × b = .61, 95% CI = .17 ∼ 1.41 for the indirect path). Together, these results reveal cross-culture differences in price fairness perceptions (and, in turn, behavioral intentions) consistent with hypothesis 1, and provide a behavioral account for the results in study 1. Study 2B: Priming Self-Construal Country comparisons can be confounded in many ways (e.g., price differences, product preferences), though the null effect in the component (cipi and cdps) conditions helps rule out this possibility. Nevertheless, to provide stronger causal evidence we conducted another study to examine the effects of culture on consumer fairness perceptions through a priming technique. Specifically, we prime culture among Singaporean participants who, at the societal level, are chronically collectivistic but also heavily influenced by Western, individualistic cultures. A priming approach rules out potential confounds in comparing across countries and has ample precedent in the literature (Chen et al. 2005; Hong and Chiu 2001; Hong et al. 2000; Ng and Houston 2006). We expect to replicate the results of study 2A by showing that priming interdependent (vs. independent) self-construal reduces fairness perceptions for asymmetric pricing but not for each of its components. Method The study was a 2 (self-construal: independence, interdependence) × 3 (pricing: asymmetric, cipi, cdps) between-subject design. A total of 158 undergraduate business students at a large university in Singapore participated in this study for partial course credit. We primed self-construal among Singaporean participants using collages of pictures and symbols. Participants were first exposed to a collage consisting of either American or Chinese cultural symbols (e.g., the Statue of Liberty and Marilyn Monroe vs. the Great Wall and the Monkey King). These collages reflect individualistic and collectivistic cultures and are established primes of independent and interdependent self-construal, respectively (Hong et al. 2000). Participants were asked to view the pictures carefully and were told that they would be asked to recall these pictures on the next page. After the recall task, participants then completed an ostensibly unrelated task. Participants read the same stimuli as in study 2A (with prices in “Sing$” in all conditions) and were asked to judge the fairness of the firm’s pricing policy on three seven-point scales (anchored by “very unfair/very fair,” “not at all just/just,” and “unreasonable/reasonable”; Bolton et al. 2010).6 Results ANOVA of fairness (α = .94) revealed a main effect of pricing (F(2, 150) = 46.32, p < .001), qualified by the expected interaction with self-construal priming (F(2, 150) = 3.58, p < .05); the main effect of self-construal was NS (F(1, 150) = 2.53, p > .10). Planned contrasts for the interaction effect revealed lower fairness judgments of asymmetric pricing when interdependence (vs. independence) was primed (Minterdependent_asymmetric pricing = 2.63 vs. Mindependent_asymmetric pricing = 3.62, F(1, 150) = 10.14, p < .01); fairness judgments of each pricing component did not differ due to priming (Minterdependent_cipi = 5.15 vs. Mindependent_cipi = 5.05, F(1, 150) = .12, p > .10; Minterdependent_cdps = 3.51 vs. Mindependent_cdps = 3.46, F(1, 150) = .03, p > .10). These results replicate study 2A and provide converging evidence for hypothesis 1 (figure 3). FIGURE 3 View largeDownload slide FAIRNESS AS A FUNCTION OF SELF-CONSTRUAL AND PRICING (STUDY 2B) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. FIGURE 3 View largeDownload slide FAIRNESS AS A FUNCTION OF SELF-CONSTRUAL AND PRICING (STUDY 2B) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. Study 2C: Measuring Self-Construal at the Individual Level While the results of the first two studies are supportive of the cultural differences in hypothesis 1 via a cross-country comparison and by priming culture, to provide converging evidence that the cultural differences are due to self-construal (vs. some other related cultural variables), we conducted a follow-up study that measured self-construal at the individual level. We focused on interdependence (Singelis 1994) because the cultural differences are theorized to be driven by the perceptions among interdependent consumers of asymmetric pricing as violating their norm-based expectations. Method The study employed a two-factor design, with pricing (asymmetric, cipi, cdps) being manipulated and interdependent self-construal being measured at the individual level. A total of 185 undergraduate business students from a major US university participated in this study for partial course credit. In an initial task, all participants were asked to respond to five items measuring interdependence drawn from Singelis (1994).7 The items included: “My happiness depends on the happiness of those around me,” “I respect people who are modest about themselves,” “I will sacrifice my self-interest for the benefit of the group I am in,” “I often have the feeling that my relationships with others are more important than my own accomplishments,” and “I feel my fate is intertwined with the fate of those around me” (on seven-point scales anchored by “strongly disagree/strongly agree”). After an unrelated filler task, participants read one of three pricing stimuli, with pricing conditions (cipi/cdps/asymmetric pricing) shown in square brackets: Imagine the following situation: Grove Pharmacy is a local pharmacy. Most customers at Grove Pharmacy have good drug coverage as part of their health insurance. Grove Pharmacy is determining the prices for its products and services. [When costs (e.g., rent, overhead) increase, the pharmacy passes on those costs to customers by increasing its prices. For example, the price paid by customers for a prescription would rise by 10% when costs increase 10%. / When costs (e.g., rent, overhead) decrease, the pharmacy maintains its prices. For example, the price paid by customers for a prescription would remain the same when costs decrease by 10%. / both] Participants then judged the fairness of the firm’s pricing practice on the same three questions as before. As a measure of behavioral intentions, participants were asked “How likely would you be to… Go to this pharmacy? Recommend this pharmacy to others?” and rated likelihood on 11-point scales (corresponding to 0–100% anchored by “very unlikely/very likely”). Results To test hypothesis 1, we analyzed fairness (α = .91) as a function of pricing, interdependence (α = .62), and their interaction. The results, summarized in table 1, show a significant interaction (F(2, 179) = 3.07, p < .05); the main effects were NS (F(2, 179) = 1.91, p > .10 for pricing; F(1, 179) = .10, p > .10 for interdependence).8 As expected, fairness perceptions decreased with interdependence for asymmetric pricing (b = –.55, t = 2.20, p < .05); fairness perceptions were unaffected by interdependence for the two components (b = .28, t = .93, p > .10 for cipi, b = .42, t = 1.27, p > .10 for cdps). Table 1 Fairness as a Function of Interdependent Self-Construal and Pricing (Study 2C) Pricing N Fairness Behavioral intention asymmetric pricing 61 3.63 (1.28) 4.96 (2.10) b* = –.55 (.25) b* = –1.01 (.42) cipi 66 4.50 (1.56) 5.81 (2.31) b = .28 (.30) b = .54 (.44) cdps 58 4.00 (1.32) 5.42 (2.37) b = .42 (.33) b = .76 (.59) Pricing N Fairness Behavioral intention asymmetric pricing 61 3.63 (1.28) 4.96 (2.10) b* = –.55 (.25) b* = –1.01 (.42) cipi 66 4.50 (1.56) 5.81 (2.31) b = .28 (.30) b = .54 (.44) cdps 58 4.00 (1.32) 5.42 (2.37) b = .42 (.33) b = .76 (.59) NOTES.—Table reports cell means and coefficients for interdependence (with standard deviations in brackets). cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. * different from zero (p < .05). Table 1 Fairness as a Function of Interdependent Self-Construal and Pricing (Study 2C) Pricing N Fairness Behavioral intention asymmetric pricing 61 3.63 (1.28) 4.96 (2.10) b* = –.55 (.25) b* = –1.01 (.42) cipi 66 4.50 (1.56) 5.81 (2.31) b = .28 (.30) b = .54 (.44) cdps 58 4.00 (1.32) 5.42 (2.37) b = .42 (.33) b = .76 (.59) Pricing N Fairness Behavioral intention asymmetric pricing 61 3.63 (1.28) 4.96 (2.10) b* = –.55 (.25) b* = –1.01 (.42) cipi 66 4.50 (1.56) 5.81 (2.31) b = .28 (.30) b = .54 (.44) cdps 58 4.00 (1.32) 5.42 (2.37) b = .42 (.33) b = .76 (.59) NOTES.—Table reports cell means and coefficients for interdependence (with standard deviations in brackets). cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. * different from zero (p < .05). An analysis of behavioral intentions (λ = .90, p < .001) revealed a similar pattern (see table 1). Moreover, fairness mediated the interaction of pricing and interdependence on behavioral intentions (Hayes 2012, model 8, with 5,000 bootstrap resamples, a × b = .87, 95% CI = .12 ∼ 1.67 for the indirect path). These findings provide further support for hypothesis 1. Discussion The results of studies 2A–C together provide a behavioral account for the cross-cultural variations in the prevalence of asymmetric pricing documented in study 1, and support hypothesis 1 concerning cultural differences in fairness perceptions within a dual entitlement context. Specifically, interdependent (vs. independent) self-construal—operationalized via country, manipulated through priming, or measured at the individual level—reduces fairness perceptions under asymmetric pricing. Also as expected, self-construal has little effect on each of the two components of asymmetric pricing, as the asymmetry in give-and-take is not transparent when consumers judge each component separately. While the findings thus far are supportive of the proposed cultural differences in fairness perceptions for asymmetric pricing (hypothesis 1), subsequent studies are designed to provide evidence that the differences are driven by culture-bound relationship norms (hypothesis 2) rather than other variables that might vary by culture. Study 3 provides preliminary evidence by directly manipulating norms to show that the manipulation leads to similar differences in fairness perceptions that mimic the cultural differences documented in studies 2A–C. STUDY 3: RELATIONSHIP NORMS AND DUAL ENTITLEMENT The objective of study 3 is to provide preliminary evidence for our norm-based argument by manipulating relationship norms to demonstrate its effects on fairness perceptions of asymmetric pricing. In effect, we used an experimental-causal-chain design to provide process evidence, following Spencer et al.’s (2005) argument that manipulating the underlying process should produce effects that are similar to manipulating the independent variable. Therefore, if relationship norms drive the cultural differences we have documented in studies 2A–C, then manipulating norms should lead to a similar pattern in fairness perceptions that mimics the cultural differences we documented in studies 2A–C. Specifically, asymmetric pricing should be perceived as less fair under communal (vs. exchange) norms, but as before this difference should weaken when fairness of the two components of asymmetric pricing is judged separately. Method Study 3 employed a 2 (relationship norms: exchange, communal) × 3 (pricing: asymmetric, cipi, cdps) between-subject design. A total of 112 undergraduate business students from a large university in the United States participated in this study for course credit. Relationship norms were manipulated via the established procedures of Aggarwal and Zhang (2006). Specifically, participants read about a hypothetical individual described as following either communal norms (e.g., “Chris is very close to her friends and is always there for them whenever they need her”) or exchange norms (e.g., “she always likes to keep things as even as possible and generally keeps track of her exchanges with others”). A manipulation check asked participants to indicate what the person would do with a bill for a lunch with friends, with the expectation that participants in the communal (exchange) relationship condition are more likely to pay the entire bill (split the bill with their friends), reflecting communal norms emphasizing concern for others (exchange norms emphasizing the pursuit of self-interest). In an ostensibly unrelated task, participants then read a scenario about a pharmaceutical company as follows (shown for the asymmetric pricing condition): Imagine a pharmaceutical company that provides an assortment of products and services in the marketplace. The pharmaceutical company is determining the prices for its products and services. When costs (e.g., rent, overhead) increase, the pharmaceutical company passes on those costs to customers by increasing its prices. When costs decrease, the pharmaceutical company maintains prices. For example, the price of a product would rise by 10% when its costs increase by 10%. However, if costs decline by 10%, the price would remain the same. The stimuli for the cipi and cdps conditions were similar, but mentioned only the pricing practice under cost increase or decrease (but not both). Participants judged the fairness of the firm’s pricing practice using the same three-item measure as before. Manipulation Check Open-ended responses were coded into paying the entire bill versus splitting the lunch bill and analyzed via a binary logistic regression. The analysis revealed a main effect of relationship norm (β = .67, Wald chi-square = 5.30, p < .05); other effects were NS (p > .10). As expected, participants in the communal condition more frequently indicated paying the entire bill compared to those in the exchange relationship (32% > 11%), showing a successful manipulation of relationship norms. Results ANOVA of fairness (α = .94) revealed a main effect of pricing (F(2, 106) = 7.20, p = .001), qualified by the expected interaction with relationship norms (F(2, 106) = 3.55, p < .05); the main effect of relationship norms was NS (F(1, 106) = .04, p > .10). Planned contrasts for the interaction revealed that fairness perceptions were lower in the communal than the exchange condition for asymmetric pricing (Mcommunal_asymmetric pricing = 2.44 vs. Mexchange_asymmetric pricing = 3.44, F(1, 106) = 5.02, p < .05), but not for its components (Mcommunal_cipi = 4.32 vs. Mexchange_cipi = 3.82, F(1, 106) = 1.33, p > .10; Mcommunal_cdps = 3.41 vs. Mexchange_cdps = 3.04, F(1, 106) = .86, p > .10). Hence, manipulating relationship norms produced differences in fairness perceptions of asymmetric pricing that mimic those due to culture (figure 4). FIGURE 4 View largeDownload slide FAIRNESS AS A FUNCTION OF RELATIONSHIP NORMS AND PRICING (STUDY 3) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. FIGURE 4 View largeDownload slide FAIRNESS AS A FUNCTION OF RELATIONSHIP NORMS AND PRICING (STUDY 3) NOTE.—cipi = when cost increases, firms’ price increases; cdps = when cost decreases, firms’ price stays the same. Replications We conducted two replications of study 3 to provide evidence for the robustness of our results. In study 3, we adopted the norm prime from Aggarwal and Zhang (2006); they used the lunch-split question both to strengthen the prime and as a manipulation check. They additionally used 13 questions as another manipulation check, whereas study 3 used only the lunch-split question as the manipulation check, leaving open the possibility of an ineffective prime (despite our supportive results). In order to address this issue, in the first replication we again used the same prime but for the manipulation check used Aggarwal and Zhang’s (2006) 13 questions. The study used the same stimuli as in study 2A (with prices in “$” in all conditions). In the second replication, we operationalized communal and exchange relationship norms at the industry level via medical doctors and financial advisors, respectively (based on a pretest). Replicating the results of study 3, both studies found that fairness perceptions were lower under communal (vs. exchange) norms for asymmetric pricing but not for its components. Results on purchase intentions were similar and were mediated by fairness. For details, please see the web appendix. Discussion Study 3 and its replications document differences in fairness perceptions arising from relationship norms that are similar to the cultural differences we observed in studies 2A–C. Whereas fairness of cipi and cdps did not differ as a function of relationship norms, asymmetric pricing was perceived as less fair under communal versus exchange relationship norms. These results (i.e., norm = > fairness), when combined with the result in study 2B that interdependents (vs. independents) were more likely to endorse the communal (vs. exchange) norm (i.e., culture = > norm; see footnote 6), provide evidence that the cultural differences documented in studies 2A–C are due to culture-bound relationship norms (i.e., culture = > norm = > fairness). Our last two studies provide further evidence for cultural differences in fairness response to asymmetric pricing by manipulating self-construal (interdependent vs. independent). In addition and more important, we provide direct evidence for the mediating role of communal norms mandating firm benevolence by (1) measuring it to demonstrate mediation of the cultural differences (i.e., hypothesis 2) in study 4, and (2) framing asymmetric pricing as benevolent to show moderation of the cultural differences (i.e., hypothesis 3) in study 5. STUDY 4: FIRM BENEVOLENCE AS THE MEDIATING NORM The primary objective of study 4 is to provide further evidence for the role of communal norms in accounting for the cultural differences in fairness perceptions for asymmetric pricing. Recall our argument that interdependent consumers are guided by communal norms that drive the cultural differences. In particular, hypothesis 2 proposes that the cultural differences in asymmetric pricing should be mediated by the communal norm among interdependent consumers for firm benevolence as reflected in community concern. In comparison, expectations of customer concern are not unique to communal norms and therefore will not mediate the cultural differences. Study 4 therefore tests hypothesis 2 by assessing the extent to which interdependent consumers base their fairness perception on the norm mandating firm benevolence via community concern but not customer concern (i.e., testing the proposed process using a measurement-of-mediation design; Spencer et al. 2005). Method The study was a two-group design that primed independent versus interdependent self-construal. A total of 89 undergraduate business students from a large US university completed the study for partial course credits. Interdependence/independence was manipulated via an established pronoun task (i.e., counting we/I pronouns in a passage; Brewer and Gardner 1996). Following the priming task, participants responded to a manipulation check question indicating the extent to which they were thinking about themselves or others (on a seven-point scale with endpoints “Totally about myself/Totally about others”; Brewer and Gardner 1996). Afterward, in an ostensibly unrelated task, participants were requested to read a news article describing asymmetric pricing, as follows: Recently, a news reporter on campus reported the pricing practice of a coffee shop that you might frequently visit. It was reported that last year, the coffee shop increased the price of a cup of coffee by $1.00. However, when costs of sugar and coffee beans decreased this year, the stall owners did not change its price. After reading the news article, participants indicated their fairness perceptions using the same three-item measure as before. To assess the proposed underlying process for the fairness differences, participants indicated the extent to which they agreed “that a firm should take care of its community/customers” (each on a seven-point scale with endpoints “Strongly disagree/Strongly agree”). The two measures appeared on separate pages; their order was counterbalanced and had no effect. Note that measuring both community and customer concern and showing mediation via the former but not the latter allowed us to test hypothesis 2 and helped rule out demand associated with directly measuring firm benevolence.9 Pretest To verify that community concern is more likely to reflect firm benevolence than is customer concern, a pretest asked 45 participants to rate their perceptions of community and customer concern on seven-point scales as benefiting others, showing concern for others, benefiting the firm, and showing concern for the firm (in randomized order). We constructed a measure of firm benevolence by subtracting the average of the latter two items (reflecting concern for the firm; λ = .77, p < .001) from the average of the first two items (reflecting concern for others; λ = .71, p < .001). As expected, we found that taking care of the community was rated as more benevolent than taking care of customers was (2.00 vs. .22, t(44) = 5.61, p < .001). In addition, taking care of the community was perceived as showing more concern for others than for the firm (2.00 > 0, t(44) = 7.37, p < .001), whereas taking care of the customers was perceived as showing equal concern for others and the firm (.22 vs. 0, t(44) = .93, p >.10). This result is consistent with our theorizing that community concern (which benefits others more than the firm) reflects the communal norm of firm benevolence more so than customer concern (which benefits both the firm and others). Therefore, the cultural differences in fairness perceptions should be mediated by consumers’ endorsement of the norm mandating firm benevolence via community concern but not customer concern (hypothesis 2). Results As a manipulation check of self-construal, ANOVA indicated that independents thought more about themselves than interdependents (Mindependence = 3.11 vs. Minterdependence = 4.32, p < .001), supporting the manipulation of self-construal. Supporting hypothesis 1 and replicating the results of our earlier studies, the main effect of self-construal on fairness (α = .85) was significant: asymmetric pricing was perceived as less fair when interdependence (vs. independence) was primed (Mindependence = 4.33 vs. Minterdependence = 3.59, F(1, 88) = 8.87, p < .01). To test what drove the difference in fairness perceptions, we next examined participants’ endorsement of norms mandating community and customer concern. As predicted, endorsement of community concern was higher when interdependence (vs. independence) was primed (Mindependence = 4.64 vs. Minterdependence = 5.29, F(1, 88) = 6.44, p < .05), and mediated the effect of self-construal on fairness perceptions (Hayes 2012, model 4, with 5,000 bootstrap resamples, a × b = –.26, 99% CI = –.66 ∼ −.01). In contrast, endorsement of customer concern was similarly high for the two self-construal conditions (Mindependence = 5.62 vs. Minterdependence = 5.66, F < 1), and failed to mediate fairness perceptions (p > .10). These results support hypothesis 2. Discussion Study 4 uses an established cultural priming manipulation of self-construal and demonstrates that interdependent consumers judge asymmetric pricing less fair than do independent consumers, providing converging evidence for the cultural differences proposed in hypothesis 1. Additionally, we find support for hypothesis 2: the difference in fairness perceptions is mediated by consumers’ endorsement of relationship norms mandating firm benevolence via community (vs. customer) concern. That is, interdependent and independent consumers differ in their perceptions of the firm’s obligation toward the community (but not its customers), and this difference in firm benevolence norms is what drives their reactions to asymmetric pricing. Given this evidence for the mediating role of the communal norm mandating firm benevolence via community concern among interdependent consumers, the final study provides further evidence for the underlying mechanism by framing asymmetric pricing in terms of firm benevolence via community concern and showing its moderation effect on the cultural differences (hypothesis 3). STUDY 5: BENEVOLENCE FRAMING The objective of study 5 is to test hypothesis 3 and provide converging evidence that the communal norm mandating firm benevolence is the key driver of the cultural differences. We do so using a moderation-of-process design by manipulating the process and showing its moderation effect (Spencer et al. 2005). Specifically, we investigate whether cultural differences in fairness perceptions are mitigated when asymmetric pricing is framed as benevolent toward the community. In line with hypothesis 3, we expect that framing asymmetric pricing as benevolent via community concern will enhance fairness perceptions more so among interdependent (but not independent) consumers who hold communal norms mandating firm benevolence that are otherwise violated by asymmetric pricing, thus mitigating the proposed cultural differences. On the other hand, the cultural difference should not be mitigated when a firm frames asymmetric pricing as showing customer concern as it benefits both the firm and others and thus is less likely to reflect firm benevolence. If supported, these results also establish an important boundary condition on the cultural differences we have documented so far. Method The study adopted a 2 (self-construal: independent, interdependent) × 3 (framing: none, community concern, customer concern) between-subject design. A total of 190 undergraduate business students from a major university in Singapore participated in this study for partial course credit. The self-construal priming and manipulation check were the same as in study 4. Afterward, in an ostensibly unrelated study, participants were asked to read a newspaper article describing asymmetric pricing as follows, with the framing manipulation shown in square brackets [community/customer/none]: Imagine the following situation: Recently, you read a newspaper report about the pricing practice of a coffee shop. It was reported that last year, the coffee shop increased the price of a cup of coffee by $0.20 as costs of sugar and coffee beans had gone up by $0.20. However, when costs of sugar and coffee beans decreased this year, the stall owners did not change its price. [When interviewed, the owner of the coffee shop said that they did not reduce the price as they are donating the money earned from the price increase to needy families in the neighborhood. / When interviewed, the owner of the coffee shop said that they did not reduce the price as they are using the money to provide better services, such as tissue napkins and sanitizers to their customers (i.e., patrons like you). / OMIT]. The report talked about how consumers feel about this pricing practice. After reading the article, participants indicated whether they felt the pricing policy was fair using the same three-item measure as before. Pretest Using measures similar to the pretest of study 4, we found support for the manipulation of community/customer benevolence. Specifically, analyzing the difference score between the two questions that measured concern for others (λ = .72, p < .001) and the two questions that measured concern for the firm (λ = .82, p < .001), we found that donating to needy families in the neighborhood was rated as more benevolent than providing better services to customers was (1.97 vs. –.13, t(44) = 5.89, p < .001). In addition, donating to needy families in the neighborhood was perceived as showing more concern for others than for the firm (1.97 > 0, t(44) = 6.50, p < .001), whereas providing better services to customers was perceived as showing equal concern for others and the firm (–.13 vs. 0, t(44) = .53, p > .10). These results support the manipulation and align with that of study 4: community concern, which benefits others more than the firm, reflects greater benevolence than customer concern, which benefits both the firm and others. Therefore, the cultural differences in the fairness perceptions should be mitigated when a firm frames asymmetric pricing as showing community concern, but not customer concern (figure 5). FIGURE 5 View largeDownload slide FAIRNESS AS A FUNCTION OF SELF-CONSTRUAL AND FRAMING OF ASYMMETRIC PRICING (STUDY 5) FIGURE 5 View largeDownload slide FAIRNESS AS A FUNCTION OF SELF-CONSTRUAL AND FRAMING OF ASYMMETRIC PRICING (STUDY 5) Results As in study 4, the self-construal manipulation was successful, with independents thinking more about themselves than interdependents (Mindependence = 3.11 vs. Minterdependence = 3.99, p < .001). ANOVA of fairness (α = .94) revealed a main effect of framing (F(2, 184) = 4.91, p < .01), qualified by the expected interaction with self-construal (F(2, 184) = 4.70, p = .01); the main effect of self-construal was NS (F < 1). To interpret the omnibus interaction and to test hypothesis 3, we examined two planned interaction contrasts. First, we compared fairness perceptions in the control versus customer-framing conditions. Consistent with theorizing, we find i) a main effect of self-construal such that interdependents judged asymmetric pricing as less fair than did independents (Mindependence = 4.13 vs. Minterdependence = 3.58, F(1, 184) = 5.80, p = .02), supporting hypothesis 1; ii) a main effect of framing such that framing asymmetric pricing as showing customer concern enhanced fairness perceptions, presumably due to the salient benefits of providing better services to all consumers (Mcontrol = 3.55 vs. Mcustomer = 4.22, F(2, 184) = 8.55, p < .01); and (iii) the interaction between self-construal and framing (none vs. customer) was NS (F < 1), indicating that the customer-framing does not mitigate the cultural differences in fairness perceptions (consistent with hypothesis 3). Second, we compared fairness perceptions in the community-framing condition against the other conditions (combining control and customer, given the null interaction reported above). Consistent with theorizing, we find a significant interaction contrast between self-construal and the community framing (F(1, 184) = 9.21, p < .01). To understand the nature of this interaction contrast, we conducted simple contrasts as a follow-up. In the condition combining control and customer framing, asymmetric pricing was perceived as less fair by interdependents than independents (Minterdependence_control&customer = 3.58 vs. Mindependence_control&customer = 4.13, F(1, 184) = 5.80, p = .02). In contrast, we observed the opposite difference when asymmetric pricing was framed as showing community concern (Minterdependence_community = 4.44 vs. Mindependence_community = 3.74, F(1, 184) = 5.80, p < .05). This pattern of results is consistent with hypothesis 3. Discussion Study 5 conceptually replicates the effect of culture on asymmetric pricing by manipulating self-construal. As a further test of robustness, we conducted a single paper meta-analysis (McShane and Bockenholt 2017) using the asymmetric pricing conditions in studies 2A and 2B, study 4, and the control and customer conditions in study 5. (Excluding the customer-framing condition in study 5 produced the same results.) Supporting hypothesis 1 and consistent with the results in each individual study, the meta-analysis revealed a significant effect of self-construal (n = 310, estimate = .99, SE = .29, t = 3.41, p < .001), with interdependent consumers judging asymmetric pricing as less fair than independent consumers. This analysis testifies to the robustness of our results. We additionally find that framing asymmetric pricing in terms of firm benevolence moderates the cultural differences. Specifically, we find that showing community concern reflects firm benevolence to a greater extent and that framing asymmetric pricing as showing concern for the community mitigates the cultural differences: interdependent consumers respond less favorably to asymmetric pricing but more favorably when asymmetric pricing is framed as consistent with the communal norm mandating firm benevolence (to the extent that it actually reverses the cultural differences). In contrast, showing customer concern reflects firm benevolence to a lesser degree, and framing asymmetric pricing as showing concern for customers enhances price fairness perceptions among all consumers but does not mitigate the cultural differences. These results support hypothesis 3. Together, the findings of studies 4 and 5 (1) further support the cultural differences in fairness perceptions of asymmetric pricing (hypothesis 1); (2) provide converging evidence for the proposed underlying mechanism due to the communal norm mandating firm benevolence (hypotheses 2 and 3) through a measurement-of-mediation design (study 4) and moderation-of-process design (study 5; Spencer et al. 2005); and (3) identify community (vs. customer) concern (i.e., the target of benevolence) as an important distinction in relationship norms and, as a result, community (but not customer) concern as a theoretically and pragmatically relevant boundary condition for the observed cultural differences. GENERAL DISCUSSION The present research examines cultural differences in price fairness perceptions within the context of dual entitlement. Specifically, we theorize that interdependent (vs. independent) consumers will judge asymmetric pricing as less fair because it violates communal norms. Consistent with our theoretical argument, we find that: i) asymmetric pricing by firms is less prevalent in collectivistic countries (study 1); ii) fairness differences emerge for asymmetric pricing as a function of the proposed cultural differences—operationalized via country, made salient through priming, and measured or manipulated at the individual level (studies 2A–2C, 4 and 5); iii) fairness differences emerge for communal versus exchange norms (manipulated directly) that mimic those due to culture (study 3 and its follow-ups); iv) the cultural differences in fairness are mediated by the communal norm among interdependent consumers mandating firm benevolence (studies 4 and 5); and v) hence, the cultural differences in fairness can be reversed when asymmetric pricing is framed as benevolent via community concern (study 5). These results provide robust evidence for hypotheses 1–3, including the underlying psychological process (the communal norm mandating firm benevolence, which is established via measurement and moderation), as well as theoretically and managerially relevant boundary conditions (community but not customer concern). Theoretical Contributions Dual Entitlement and Asymmetric Pricing The present research extends Kahneman et al.’s (1986a, 1986b) pioneering work on the dual entitlement principle by examining its robustness and boundary conditions. Dual entitlement is a cornerstone of research on behavioral pricing. Asymmetric pricing provides a context for testing the core aspects of dual entitlement (the firm’s entitlement to its reference profit and the consumer’s entitlement to a reference price). Our research contributes to this literature by demonstrating that consumer endorsement of the principle of dual entitlement is not monolithic but varies systematically with culture and pricing actions. These findings raise questions about the generalizability of dual entitlement as a “community standard of fairness” (Kahenman et al. 1986a, 729). Our research also contributes a behavioral account for the practice of asymmetric pricing and its cultural variation. If consumers endorse dual entitlement, firms may be able to respond asymmetrically to cost changes (Kahneman et al. 1986a, 1986b). Indeed, this pricing practice has been documented for a wide variety of product markets (Bayer and Ke 2011; Bonnet and Villas-Boas 2016; Borenstein, Cameron, and Gilbert 1997; Hannan and Berger 1991; Jackson 1997; Karrenbrock 1991; Neumark and Sharpe 1992; Peltzman 2000; Pick, Karrenbrock, and Carmen 1991), and yet it is poorly understood. The present research answers Bonnet and Villas-Boas (2016) and Peltzman’s (2000) calls for more research on causes of this pricing practice by providing a behavioral explanation based on consumer fairness perceptions. As our work demonstrates, endorsement of dual entitlement and firm adoption of this pricing practice vary with culture and associated relationship norms in a predictable manner. These results thus take a step toward understanding the potential consumer behavioral underpinning of this pricing practice. Relationship Norms Our research also adds to the literature regarding the critical importance of relationship norms in understanding consumer behavior. Various types of social relationships have been proposed in the literature. For instance, Adler and Kwon (2002) make the distinction between market relations and social relations. Fiske (1992) distinguishes among four types of relationship models: community sharing, equality matching, authority ranking, and market pricing. The distinction between communal and exchange relationships (Clark and Mills 1993) investigated in the current research aligns with Adler and Kwon’s (2002) social and market relationships, and Fiske’s (1992) community sharing and market pricing models, respectively. While Fiske’s framework provides a more nuanced perspective on social relationships, we focus on communal and exchange relationships because (1) they are located at the ends of the continuum in Fiske’s model and have the potential to trigger the most extreme reactions if violated (McGraw et al. 2003); and (2) they are linked to interdependent and independent self-construal, respectively (Triandis 2001a, 2001b; Triandis and Gelfand 1998) and lend themselves to an examination of cultural differences in asymmetric pricing. How self-construal and other aspects of culture (e.g., power distance belief) affect other types of relationships (e.g., equality matching, authority ranking) is worthy of further investigation. Additionally, we extend the existing marketing literature on communal and exchange relationships in the context of buyer-seller relationships (Scott, Mende, and Bolton 2013), consumer-brand relationships (Aggarwal and Law 2005; Aggarwal 2004), and product valuations (Aggarwal and Zhang 2006; Heyman and Ariely 2004) to the domain of pricing. Our work demonstrates how norms governing the buyer-seller relationship underlie the cultural differences in fairness perceptions of asymmetric pricing—and answers the call for a better understanding of the role of social norms in shaping price fairness perceptions (Xia et al. 2004). Our work also highlights a critical and yet relatively understudied aspect of communal relationships, specifically communal norms mandating firm benevolence (i.e., concern for others based on their needs without expecting repayment; Aggarwal 2004; Clark and Mills 1993; Mills and Clark 1986). We highlight the importance of the target of benevolence—the community, which fulfills the communal norm, and the customer, which fails to fulfill the norm (because doing so also benefits the firm). This aspect of communal relationships—understanding who the “others” are when communal norms are salient—is important and deserves more attention in the literature. Culture and Pricing Finally, we extend past work by investigating how culture affects the impact of price information, and we contribute to the scant research on the role of culture in price fairness (Bolton et al. 2010; Lalwani and Shavitt 2013). The last decade has witnessed considerable growth in research concerning the impact of culture on consumer decision making and consumption behavior—yet there is limited research on how culture affects consumer response to pricing tactics adopted by firms (Ng and Lee 2015). We provide not only evidence of systematic differences in firm pricing practice across culture (study 1) but also a behavioral account for these cultural differences (studies 2–5). These differences in consumer fairness perceptions based on cost-price relationships open up a range of additional questions regarding how consumers respond to the give-and-take in pricing across culture, as well as the foundational principles of behavioral pricing (such as DE). Managerial Implications The present research also contributes to a better understanding of managerial pricing practices, as well as relationship marketing. First, marketers routinely face decisions on whether to pass on cost increases and decreases through pricing. Our research suggests that such decisions need to take into account cultural differences in social norms. As we demonstrate, such relationship norms differ across culture and also vary naturally by industry. As our evidence attests, firms may wish to avoid pricing asymmetrically in response to cost changes in collectivistic cultures, in certain industries where communal norms are prevalent (e.g., medical), or when such norms are emphasized in their marketing activities (e.g., in Olive Garden’s “When you are here, you are family” or State Farm’s “Like a good neighbor” ad campaigns). Our results suggest that, when engaging in asymmetric pricing, marketers can enhance fairness perceptions among interdependent consumers by mitigating concerns that the firm is not fulfilling communal norms. Asymmetric price response to cost changes makes salient the firm’s pursuit of self-interest at the expense of consumers and is therefore perceived to be unfair. However, firm benevolence can mitigate unfairness perceptions—but only when implemented appropriately. For example, showing concern for and providing services to the community when practicing asymmetric pricing can enhance price fairness perceptions among interdependent consumers; in contrast, showing concern for and providing better services to customers do not. Our work also points to a downside of cost transparency in the marketplace. While cost information has traditionally been closely guarded by firms, the practice of transparent pricing, with the free and readily available information on the internet, “has been gaining hold among a select group of retailers” for which “customers can see exactly what they are paying for and how much the manufacturer is charging them on top of its cost of production” (Groves 1998; Krugman 2008; Sinha 2000; Stevenson 2017). Although the benefits of cost transparency have been touted (Gerdeman 2014; Mohan, Buell, and John 2015), our research suggests it could be detrimental to firms when cost-price relationships make asymmetric pricing salient to consumers. Finally, our research has important implications for companies who are actively engaged in creating relationships with their customers. In today’s market, many firms attempt to create communal relationships with their customers, by claiming to treat them like best friends or even family members (e.g., Harley-Davidson, Avery, Fournier, and Wittenbraker 2014; “SC Johnson, A Family Company,” Phelps 2014). One unique insight from the current research is that these companies may face a downside in the marketplace inasmuch as consumers will be less accepting of asymmetric pricing and, more generally, other practices that violate the communal norms mandating firm benevolence. While creating a communal relationship with consumers may increase their loyalty (Malone and Fiske 2013), our results provide a cautionary note to firms if customer-relationship management changes the relative emphasis on communal norms and corresponding expectations regarding firm benevolence. Limitations and Future Research Our research has several limitations that present opportunities for future research. An important question for future research concerns the components of asymmetric pricing. While asymmetric pricing was the focal point of our investigation, we note that fairness perceptions tended to differ between the two components of asymmetric pricing, with cipi being perceived as more fair than cdps in the majority of our studies. These results are largely consistent with Kahneman et al.’s (1986a) original finding that a larger proportion of participants in their study supported cipi (79%) than cdps (53%). Although Kahneman et al. (1986a) interpreted their results as evidence for endorsement of dual entitlement, our findings coupled with a closer examination of their work may raise questions about this interpretation. Consumers may be willing to endorse the firm’s entitlement to protect an existing level of profit (i.e., preserving the status quo profit by raising prices when costs increase, as in cipi)—but the relatively low level of endorsement of cdps suggests that consumers are less willing to endorse an increase in firm profits that maintains the consumers’ entitlement to a reference price. Given consumers’ tendency toward profit aversion (Bhattacharjee, Dana, and Baron 2017; Lee, Bolton, and Winterich 2017), future research to understand how consumers respond to firms’ profit taking (e.g., in cdps) is needed. Future research should also compare asymmetric pricing to other pricing practices. In a study (omitted for brevity), we investigated two additional pricing strategies: cost-plus (i.e., 100% pass-through of cost increases and decreases) and buffering (i.e., 0% pass-through of cost increases and decreases), which both reflect a firm’s symmetric pricing response to cost changes. We find that both are perceived to be more fair than asymmetric pricing (consistent with Kalapurakal et al. 1991) and that fairness of these two symmetric pricing practices does not differ by culture. Together, these findings beg the question whether DE is indeed a community standard of fairness, and future research is encouraged to assess the robustness of our work and to explore other aspects of Kahneman et al.’s (1986a) pioneering work on dual entitlement. Finally, though our findings answer the call for greater research in the area of culture and pricing, it has addressed only a small slice of a much bigger research area. In addition to asymmetric pricing that is prevalent and fundamental to firm pricing, there are many other pricing tactics used by firms to attract consumers, such as price promotions, everyday low price strategies, and pay as you wish. As yet, we do not know how culture may affect consumers’ susceptibility to these pricing tactics. There is wide scope for future research in this area. Conclusion With the increasing availability of cost information to consumers from the media and the firms themselves (Chew 2015; Gerdeman 2014; Mohan et al. 2015; Sinha 2000; Stevenson 2017), and given trends toward globalization and customization, understanding how different consumer groups view manufacturers and retailers and react to their pricing practices is of central concern to marketing. Focusing on asymmetric pricing, we provide evidence for cultural differences in the fairness perceptions for this prevalent and fundamental pricing practice, its underlying process, and boundary conditions. Our results challenge the universality of Kahneman et al.’s (1986a) pioneering work on dual entitlement, and hopefully will spur more research to understand how marketers can improve pricing decisions vis-à-vis consumer perceptions to garner competitive advantage in the global marketplace. DATA COLLECTION INFORMATION Data for study 1 was collected by the fourth author online in 2014. Data for study 2A was jointly collected by the first and third authors at the University of Miami and the Nanyang Technological University in 2006. Data for study 2B was collected by the third author at the Nanyang Technological University in 2012. Data for study 2C was collected by the second author at the Pennsylvania State University in 2009. Data for study 3 was collected by the first author at the University of Miami in 2007. Data for study 4 was collected by the fifth author at the Texas A&M University in 2017. Data for study 5 was collected by the third author at the Nanyang Technological University in 2017. Data for study 1 was analyzed by the fourth author. Data for studies 2A, 2B, and 3 was analyzed by the first author. Data for study 2C was analyzed by the second author. Data for study 4 was analyzed by the fifth author. Data for study 5 was analyzed by the third author. Data for all studies were analyzed in consultation with the other authors. The first author would like to thank the seminar audience at the University of Texas at Austin for their feedback on an earlier version of the article. The authors also thank the Franco Nicosia ACR Best Competitive Paper Award and the Institute on Asian Consumer Insight at Nanyang Technological University for their financial support, and the JCR review team for their guidance. Supplementary materials are included in the web appendix accompanying the online version of this article. Correspondence: Haipeng (Allan) Chen. Footnotes 1 On the other hand, a firm cannot make more profit by raising its prices, as when demand is temporarily higher or there is a lack of competition; in other words, fairness concerns also act as a constraint on firm pricing actions from a DE-fairness perspective (Kahneman et al. 1986a). 2 For clarity of exposition, our work will refer to cultural differences in independent/interdependent self-construal at the individual level, which align with individualism/collectivism at the societal (or country) level. As shorthand, we will also refer to individuals with an independent/interdependent self-construal (or in individualistic/collectivistic culture) as independents/interdependents. 3 We empirically validate this argument in the pretest for studies 4 and 5. 4 In this and the following studies, we focus on the proposed interaction effect in our analysis. A discussion of main effects is deferred to the General Discussion section. 5 The same patterns emerge in all the other studies. Due to space constraints, we do not present similar analyses for the remaining studies. 6 As expected, we found a significant effect of the self-construal manipulation on a measure of relationship norm adapted from Clark and Mills (1979) such that interdependents (vs. independents) were more likely to endorse the communal (vs. exchange) norm. Details are omitted for brevity. 7 The selection of the items was based on the highest item-to-total correlations with the original 12-item scale in a pretest, given that the reliability of this scale is low, as has been noted in the literature (Singelis 1994). 8 When we dummy-coded asymmetric pricing, its interaction with interdependence continued to hold (F(1, 179) = 4.61, p < .05). The two main effects, the effect of the other pricing dummy, and its interaction with interdependence were NS, p > .10. 9 We did directly measure firm benevolence (“defined as showing concern for others without considering benefit to oneself”) in a study that mimicked the design of study 4, and found that fairness (α = .91) differed between the two self-construal conditions as expected (Mindependence = 4.01 vs. Minterdependence = 3.28, F(1, 42) = 4.20, p < .05) and was mediated by firm benevolence (Hayes 2012, model 4, with 5,000 bootstrap resamples, a × b = –.30, 95% CI = –.83 ∼ –.01). REFERENCES Aaker Jennifer , Lee Angela ( 2001 ), “‘I’ Seek Pleasures and ‘We’ Avoid Pains: The Role of Self-Regulatory Goals in Information Processing and Persuasion,” Journal of Consumer Research , 28 1 , 33 – 49 . Google Scholar CrossRef Search ADS Adler Paul , Kwon Seok-Woo ( 2002 ), “Social Capital: Prospects for a New Concept,” Academy of Management Review , 27 1 , 17 – 40 . 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Published by Oxford University Press on behalf of Journal of Consumer Research, Inc. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)

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Published: Dec 8, 2017

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