Journal of Retailing and Consumer Services 40 (2018) 204–212

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Journal of Retailing and Consumer Services

journal homepage: www.elsevier.com/locate/jretconser

The impact of dynamic bundling on price fairness perceptions T

⁎,1
Wenjing Li , David M. Hardesty, Adam W. Craig
University of Kentucky, 550 S Limestone, Lexington, KY 40506, USA

A R T I C L E I N F O A B S T R A C T

Keywords: With the increased availability of consumer-specific data and the ease of changing prices, firms more frequently
Dynamic pricing use dynamic pricing where products are priced at an individual level based on individual consumer information.
Bundling Dynamic pricing can effectively extract consumer surplus and increase firm profitability. However, it also
Fairness and unfairness perceptions arouses consumer unfairness perceptions. Three studies demonstrate that the use of bundling in combination
Dynamic bundling
with dynamic pricing (dynamic bundling) can reduce consumer unfairness perceptions. The negative effects of
Transaction dissimilarity
Comparison intentions
dynamic pricing are mitigated by bundling. A bundle enhances perceived transaction dissimilarity thereby re-
ducing consumers’ comparison intentions leading to greater price fairness perceptions.

1. Introduction
Dynamic pricing, also called yield management, has been widely
practiced in the airline and hotel industries and has been more recently
adopted in other industries including sports and entertainment. It is a
strategy in which prices are free to adjust across time, consumers, and/
or circumstances based on consumer-specific data (Haws and Bearden,
2006). Dynamic pricing allows firms to price products at the individual
level to extract consumer surplus (Grewal et al., 2004). Technology that
facilitates consumers’ individual viewing (e.g., Amazon's website) fur-
ther allows firms to specify a unique price for each individual. Elec-
tronics, clothing, jewelry, and household items can be priced at a level
most likely to attract any particular consumer (Angwin and Mattioli,
2012).
While dynamic pricing can increase profitability up to 25%
(Garbarino and Lee, 2003; Petro, 2015), it also can cause problems for
firms. Consumers experience greater perceptions of unfairness and
lower levels of trust when prices are different across consumers
(Garbarino and Lee, 2003; Grewal et al., 2004; Haws and Bearden,
2006). Relying on its advanced information systems and vast customer
database, Amazon.com priced the same DVD movies differently to
consumers based on their online profiles and previous purchasing be-
haviors (Monroe, 2003; Grewal et al., 2004). When consumers found
out about Amazon's dynamic pricing strategy, their complaints against
the company soon filled the chat boards. Amazon had to publicly claim
that they would no longer use dynamic pricing (Streitfeld, 2000). More
recently, Apple and Netflix experienced similar situations. In September
2007, Apple dropped its iPhone price by $200 within three months of
product launch. Consumers who paid full price were outraged by the
price drop. To comfort the livid consumers, Apple apologized and of-
fered a $100 credit for Apple products (Mohammed, 2012). In July
2011, Netflix raised its price, but turned a blind eye to its customers’
rage. Its stock price dropped more than two-thirds within three months
of the price increase (Mohammed, 2012). Thus, firms face a dilemma.
They want to implement dynamic pricing to increase profitability.
However, they have concerns that this pricing strategy could alienate
their customers by arousing unfairness perceptions. Is it possible for
retailers to utilize a pricing tactic that reaps the benefit of extracting
consumer surplus from using dynamic pricing while not arousing con-
sumer unfairness perceptions? If so, what underlying mechanisms ex-
plain the process through which unfairness perceptions could be re-
duced? The main objective of the present research is to provide firms a
novel solution by combining bundling with dynamic pricing to create
an alternative pricing strategy, dynamic bundling, defined as a pricing
strategy in which the price of a product changes when the focal product
is bundled with additional products. More importantly, this is a distinct
strategy from product bundling alone. The second objective is to assess
the effectiveness of dynamic bundling vs. dynamic pricing in terms of
its impact on price fairness perceptions.
In this paper, we conduct three studies to assess whether dynamic
bundling can reduce consumer unfairness perceptions associated with
dynamic pricing. We find that bundling not only mitigates the negative
impact of dynamic pricing on fairness perceptions, but also results in
fairness perceptions similar to those aroused by fixed pricing. In doing
so, we advance knowledge in several ways. We are the first to introduce
the combination of bundling and dynamic pricing as a new pricing

⁎
Corresponding author.
E-mail addresses: wenjing.li@uky.edu (W. Li), david.hardesty@uky.edu (D.M. Hardesty), adam.craig@uky.edu (A.W. Craig).
1
We would like to thank Bill Bearden for providing helpful feedback for this manuscript.

http://dx.doi.org/10.1016/j.jretconser.2017.10.011
Received 22 May 2017; Received in revised form 9 October 2017; Accepted 18 October 2017
Available online 06 November 2017
0969-6989/ © 2017 Elsevier Ltd. All rights reserved.
W. Li et al.
strategy. By introducing this new pricing strategy, we demonstrate the
superiority of dynamic bundling relative to dynamic pricing on fairness
perceptions. Unlike dynamic pricing, dynamic bundling helps firms
increase their profitability without generating unfairness perceptions.
In addition, we offer a process explanation as to why dynamic
bundling reduces price unfairness perceptions. Specifically, we estab-
lish a serial mediation model in which perceived transaction dissim-
ilarity and comparison intentions mediate the effect of dynamic bund-
ling on fairness perceptions. Importantly, we find that perceived
transaction dissimilarity reduces comparison intentions thereby les-
sening unfairness perceptions.
Moreover, our research contributes to the bundling literature by
demonstrating another benefit of bundling: enhancing fairness per-
ceptions. While bundling reduces searching, sorting, and processing
costs (Hayes, 1987), extracts consumer surplus (Janiszewski and
Cunha, 2004), increases consumers’ purchase intentions and perceived
value (Johnson et al., 1999; Arora, 2008), and helps firms differentiate
their products and services (Dominique-Ferreira et al., 2016), previous
research has not investigated how bundling impacts price fairness
perceptions. And while some recent research found that unbundling
may increase current revenue (Koschat and Putsis, 2002), potentially
reducing the utility of bundling in some conditions, our findings pro-
vide firms a new factor to consider when deciding whether to imple-
ment bundling.
Additionally, our proposed new pricing strategy has a wide appli-
cation and can be used for almost any product. In our present research,
we will focus on price bundling (vs. product bundling) as it has a wider
application than product bundling (Naylor and Frank, 2001; Gilbride
et al., 2008). The combination of dynamic pricing with bundling sug-
gests the possibility of a broader strategy for retailers that uniquely
tailors offerings to each consumer in a way that reduces perceived si-
milarity and comparison intentions (see Fig. 1 for our conceptual
model).
2. Theoretical background and hypotheses development
2.1. Dynamic pricing
Dynamic pricing is defined as a strategy in which prices are free to
adjust over time, consumers, and/or circumstances (Haws and Bearden,
2006). In the current research, the dynamic component of dynamic
pricing focuses on the consumer in that different consumers will be
charged different prices for the same product. The practice of dynamic
pricing is based on the premise that consumers are heterogeneous.
Different consumers usually have different maximum prices they are
willing to pay for a given product. This maximum price a consumer is
willing to pay for a product is called a reservation price (Wang et al.,
Fig. 1. Conceptual model.
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Journal of Retailing and Consumer Services 40 (2018) 204–212
2007). As such, fixed pricing, that provides different consumers the
same price, might not be an optimal pricing strategy. In fixed pricing,
consumers who are willing to pay more for a product will end up paying
less than what they are willing to pay. Dynamic pricing specifically
addresses these variances among consumers’ reservation prices. It al-
lows firms to price discriminate at the individual level based on cus-
tomer profiles and previous purchasing behavior data (Kannan and
Kopalle, 2001). Consumers who are willing to pay more will be charged
more. For consumers whose reservation prices are relatively low, they
will be provided with prices that match their reservation prices as-
suming these prices meet the firms’ minimum profit margins. Thus, by
extracting surplus and bringing in more business, dynamic pricing can
help firms increase their profitability up to 25% (Garbarino and Lee,
2003; Petro, 2015).
Eager to boost their profitability, many firms implement dynamic
pricing with the help of advanced technology and the increasing
availability of vast consumer databases (Jayaraman and Baker, 2003).
While firms prefer to implement dynamic pricing, many of them are
also weary of consumer unfairness perceptions often associated with
this strategy.
2.2. Dynamic pricing and consumers’ price fairness perceptions
2.2.1. Social comparison theory and price fairness perceptions
Price fairness perceptions refer to consumers’ judgments and asso-
ciated emotions as to whether the price they paid is just, relative to the
prices other comparative parties paid (Xia et al., 2004). It is a com-
parative concept and only evoked when consumers compare different
prices (Monroe, 2003). Social comparison theory describes how people
fulfill their quest for self-knowledge by comparing themselves with
others (Festinger, 1954). Further, comparison can help a person ap-
praise their abilities (Trope, 1983, 1986). According to social compar-
ison theory, people have an automatic tendency to compare two entities
(usually people) that share some similarities (Corcoran et al., 2011), but
this principle can be applied to the comparison of transactions as
consumers will be concerned with what benefit another customer re-
ceived (Bolton et al., 2003; Xia et al., 2004). Consumers tend to choose
transactions similar to theirs when judging the fairness of their own
transaction.
The intention to compare similar entities is motivated by the need
for accurate evaluations (Taylor et al., 1996). When compared entities
are very similar or the same, consumers can simply evaluate the out-
comes to determine the justness. For example, if a consumer wants to
know whether the price they paid for an airline ticket to Chicago is fair,
they are likely to use the purchase of the same airline ticket as the
comparative reference. A comparison to a similar transaction can easily
reveal whether the price they paid is fair. Not only do people tend to
choose a similar transaction to compare, the presence of similarity
(between customers or transactions) also makes them pay more atten-
tion to it. This phenomenon is known as similarity bias in the social
comparison literature (Mussweiler, 2003). The focus on the similarities,
in turn, increases comparison intentions. In the current context, it is
possible that a reduction in comparison intentions or likelihood may
prevent unfairness perceptions.
2.2.2. Equity theory and price fairness perceptions
Firms that implement dynamic pricing sell the same products at
different prices. The high degree of similarity induces consumers to
selectively process information to further support the similarity
(Mussweiler, 2003). The enhanced perceptions of similarity increase
consumers’ comparison intentions. A comparison of two highly similar
transactions in the dynamic pricing setting reveals to consumers that
they receive the same amount of benefits, the same products, which, in
turn, arouses a strong entitlement to pay a similar price (Bolton et al.,
2003). However, under the practice of dynamic pricing, consumers pay
different prices (different contributions) for the same product (same
W. Li et al.
amount of benefits). Equity theory suggests that people expect to re-
ceive the amount of benefits that is equal to what they have contributed
(Adams, 1965). According to equity theory, consumers focus on the
equality of their outcomes to judge the fairness of their transactions. In
line with social comparison theory, equity theory also implies a com-
parison with other comparative parties, other consumers, or different
organizations to judge the outcome (Xia et al., 2004). When consumers
compare their transactions with that of other consumers, they will
realize that they have contributed differently for the same outcome
(Oliver and Swan, 1989), which violates equity theory. Unfairness
perceptions are likely to arise. The consequences of unfairness per-
ceptions can be costly. Consumers will demonstrate low satisfaction and
repurchase intentions and may even spread negative word of mouth or
boycott the firm (Campbell, 1999; Grégoire and Fisher, 2008). The
widespread use of social media makes the consequences of unfairness
perceptions even more dire. Although digital media and the internet
make it very easy for marketers to practice dynamic pricing due to the
volume of consumer-specific information, the transparency and strong
connections among customers also make it more likely for customers to
detect price discrepancies. As soon as consumers recognize price dis-
crimination, the speed of transmission and the number of other con-
sumers they can reach make the consequences of unfairness perceptions
more damaging to firms. As a result, it is vital that the problem of
unfairness perceptions be avoided.
2.2.3. Reducing comparison intention through transaction dissimilarity
To make dynamic pricing more acceptable, firms may attempt to
reduce consumers’ comparison intentions as fairness perceptions are
inherently comparative. For example, modifying product features can
increase perceived dissimilarity among transactions and, as such, re-
duce comparison intentions. However, feature modifications may be
too costly to implement. Price framing can also mitigate consumers’
unfairness perceptions toward dynamic pricing (Weisstein et al., 2013).
To reduce consumers’ negative reactions, retailers can frame the price
to price-disadvantaged consumers as a base price plus a discount (e.g.,
$25 + 25% off), while framing the price to price-advantaged con-
sumers as a single price format (e.g., $15). While price framing is one
way to reduce unfairness perceptions associated with dynamic pricing,
we propose a new pricing strategy that combines bundling, a strategy
known to extract consumer surplus, with dynamic pricing to create
different transactions to increase perceived transaction dissimilarity
thereby reducing consumers’ comparison intentions.
2.3. Bundling
Bundling is defined as the sale of two or more separate products in
one package (Stremersch and Tellis, 2002) that may refer to either
product bundling or price bundling. In a product bundle, different
products are integrated or complemented in a way that can provide
added value to consumers (Stremersch and Tellis, 2002). For example, a
personalized diet plan and exercise training program are combined as
the bundle of these two products could better achieve consumers’
health goals than each of the products alone. For price bundling, a
single price is presented for multiple products that are not integrated
together (Soman and Gourville, 2001; Stremersch and Tellis, 2002). In
our present research, we will focus on price bundling as it has a wider
application than product bundling. Bundling has been extensively in-
vestigated in both the economic and marketing literature. Early eco-
nomic scholars focused on the financial benefit of bundling, such as
reducing cost (Hayes, 1987) and extracting consumer surplus (Adams
and Yellen, 1976; Guiltinan, 1987). Marketing researchers have ex-
amined the impact of bundling on consumers’ perceptions and beha-
viors (Ahmetoglu et al., 2014). Johnson et al. (1999), and Arora (2008)
find that bundling can not only increase consumers’ purchase inten-
tions, but also enhance customer loyalty. Sheng and Pan (2009) de-
monstrate that bundling can help introduce a new brand. Andrews et al.
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Journal of Retailing and Consumer Services 40 (2018) 204–212
(2010) confirm that bundling strengthens perceived value and increases
consumers’ switching intentions to the bundle. Yan et al. (2014) results
suggest that bundling can potentially reduce advertising expenses.
Dominique-Ferreira et al. (2016) find that bundling can help firms
differentiate their products and services. According to Dominique-
Ferreira (2017), salespersons can use bundling to improve their effi-
ciency in approaching customers. However, to our knowledge, no one
has investigated the benefit of bundling in enhancing price fairness
perceptions, despite the possibility as suggested by Dominique-Ferreira
et al. (2016). Thus, by using price bundling and demonstrating its ef-
fectiveness, we provide firms an easy-to-use tool for addressing the
problem of unfairness perceptions.
2.4. Dynamic bundling
Dynamic bundling is defined as a pricing strategy in which the price
of a product changes when the focal product is bundled with additional
products. The prices of the products in each bundle may be determined
based on consumer profiles and their previous purchasing behavior
(Kannan and Kopalle, 2001). By bundling products/services together,
retailers create a new and different transaction. The transaction of
purchasing an individual product is different from the transaction of
purchasing a bundle of multiple products. For example, the transaction
of purchasing a single airline ticket is different from that of purchasing
a bundled airline ticket and hotel room. As suggested by social com-
parison theory, consumers are less likely to compare two entities per-
ceived as dissimilar (Corcoran et al., 2011). In the case of dynamic
bundling, as the perceived transaction dissimilarity is very high, con-
sumers’ comparison intentions will be very low. Since fairness percep-
tion is an inherently comparative concept and is only evoked when
consumers make a comparison (Fernandes and Calamote, 2016),
without comparison motivation, violation of equity theory will not
occur and unfairness should not be involved. When firms create new
and unique products through bundling and apply dynamic pricing, they
increase perceived dissimilarity among the transactions. The enhanced
dissimilarity among the transactions, in turn, reduces consumer's
comparison intentions making unfairness perceptions less likely to
occur. Thus, we propose:
H1. : Dynamic bundling results in higher fairness perceptions than
dynamic pricing.
H2:. Dynamic bundling enhances fairness perceptions by increasing
perceived transaction dissimilarity and then reducing comparison
intentions.
3. Studies
3.1. Overview of studies
We test these predictions in three studies. In Study 1, we investigate
the impact of dynamic bundling on fairness perceptions relative to
dynamic pricing. We examine whether consumers in the dynamic
bundling condition perceive the price as fairer than those in the dy-
namic pricing condition (Hypothesis 1). In Study 2, we test the un-
derlying mechanism in different industries (i.e., hotel and airline).
Specifically, we examine whether dynamic bundling will increase per-
ceived transaction dissimilarity and then reduce consumers’ compar-
ison intentions thereby enhancing price fairness perceptions
(Hypothesis 2). Finally, in Study 3, we include fixed pricing conditions
and directly compare dynamic bundling with fixed pricing to determine
their impact on consumer fairness perceptions (see Table 1 for a sum-
mary of the studies).
W. Li et al.
Table 1
Summary of studies.
Sampling method Research participants Methods and
techniques
Study 1 Convenience sample Undergraduate Experimental Design
students
Study 2 Convenience sample Undergraduate Experimental Design
students
Study 3 Convenience sample Undergraduate Experimental Design
students
3.2. Study 1
The purpose of Study 1 is to provide an initial demonstration that
dynamic bundling mitigates the negative impact of dynamic pricing on
price fairness perceptions. Specifically, we compare dynamic pricing
with dynamic bundling to assess their impact on price fairness per-
ceptions.
3.2.1. Method
A pretest was conducted with 36 participants from the same po-
pulation as those in the main study to select a brand and a price for the
tie-in product (jeans) used in the main study. We wanted to use a brand
our participants were familiar with. American Eagle, Gap, and J Crew
were assessed in the pretest in order to choose a brand to use in the
main study. American Eagle was the most familiar brand and the price
for a pair of high-end American Eagle jeans was estimated to be $89, on
average. We also ran another pretest with 33 undergraduates to de-
termine whether our bundling manipulations change the quality per-
ceptions of the main product. In the pretest, participants were randomly
assigned to read one of the scenarios used in Study 1 and were asked to
indicate whether their quality perceptions of the main product (coat)
they purchased were similar to the one the other student purchased (1
= “very different,” 9 = “exactly the same”). Results from this pretest
indicated that there was no significant difference in the perceptions of
product quality between dynamic bundling (M = 7.88) and dynamic
pricing (M = 7.13, F (1, 32) = 1.04, p > .3). Thus, our bundling ma-
nipulations did not impact the perceptions of product quality.
Sixty undergraduates completed the main study in return for partial
course credit. They were randomly assigned to one of the two condi-
tions (dynamic bundling vs. dynamic pricing). In the study, participants
were provided with a scenario asking them to imagine being in a si-
tuation in which they were working on a study-related task with some
fellow students (see Appendix A for the scenarios used). The scenario
indicated that one of the students in the group was wearing a new coat
that participants also have. Consistent with prior bundling manipula-
tions (Soman and Gourville, 2001; Yadav and Monroe, 1993) and our
use of price bundling (Soman and Gourville, 2001), in the dynamic
bundling condition, participants were told that they paid $79 for the
coat and the fellow student paid $144 for the coat and a pair of high-
end American Eagle jeans. Participants in the dynamic pricing condi-
tion were told that they paid $79 for the coat, while the fellow student
paid $55 for it. To be consistent with the dynamic bundling condition,
the scenario also described the fellow student as purchasing a pair of
high-end American Eagle jeans. We used the pretested price of $89 for a
pair of high-end American Eagle jeans to make the conditions eco-
nomically equivalent ($55 + $89 = $144). Thus, in our scenario, the
dynamic component of dynamic pricing is manipulated on the con-
sumer (Haws and Bearden, 2006). The same firm charges consumers
different prices for the same product. According to Haws and Bearden's
(2006) research, temporal proximity will impact price fairness per-
ceptions such that temporally proximate price differences are perceived
as more unfair than temporally distant ones. To account for the factor of
temporal proximity, we told participants that they both purchased this
Journal of Retailing and Consumer Services 40 (2018) 204–212
Objectives Results
Test H1 Supported H1 - Dynamic bundling perceived as more fair
Test H1 and H2 Supported H1 and H2 - dynamic bundling perceived as more
fair; effect mediated by perceived dissimilarity and comparison
intentions.
Compare dynamic bundling Dynamic bundling has a similar effect as fixed pricing on
with fixed pricing. fairness perception.
coat from the same store around the same time.
After reading the scenario, participants indicated how fair, just, and
reasonable they thought the price they paid for the coat was (1 =
“extremely unfair/unjust/unreasonable,” 9 = “extremely fair/just/
reasonable) (Xia et al., 2004). These three items were combined into a
“price fairness perceptions” measure (α = .92), which served as the
dependent variable in all of our studies.
It is possible that consumers expect a discount when purchasing
bundled products (Kalwani and Yim, 1992) as firms often provide dis-
counts for bundles (Janiszewski and Cunha, 2004). To control for the
effect of this expectation, we asked participants to indicate their
agreement with the statement “Consumers should receive a discount
when they buy a bundle of different products” (1 = “strongly disagree,”
9 = “strongly agree”).
3.2.2. Results
3.2.2.1. Discount expectations. The mean for discount expectations was
5.83 suggesting that participants did have some expectations for
receiving a discount when purchasing a bundle. Pricing type did not
have a significant impact on discount expectations as participants in
both pricing conditions demonstrated similar discount expectations for
a bundle (Mdynamic bundling = 5.94, Mdynamic pricing = 5.72, F (1, 58) =
.16, p > .6).
3.2.2.2. Fairness perceptions. To assess price fairness perceptions
toward the coat, we ran a one-way ANCOVA with pricing type
(dynamic bundling vs. dynamic pricing) predicting price fairness
perceptions, controlling for discount expectations. Our first
hypothesis predicts that consumers will perceive the price as fairer
when dynamic bundling is used than when dynamic pricing is used. As
expected, participants assigned to the dynamic bundling condition
reported that they perceived the price they paid for the coat as fairer
than those assigned to the dynamic pricing condition (Mdynamic bundling
= 6.00, Mdynamic pricing = 4.99; F (1, 57) = 5.86, p = .02; R2 = .10).
Discount expectations were not significant as a control variable (F (1,
57) = .05, p > .8). We re-ran all the analyses without discount
expectations as the control variable and all of the results still held.
Study 1 provides evidence that dynamic bundling results in higher
fairness perceptions when compared with dynamic pricing (H1). In
Study 1, H1 was tested in an industry where dynamic pricing has only
been recently introduced. Some research has indicated that consumers’
acceptance of dynamic pricing increases as time goes by Kimes (2002).
It could be that dynamic bundling is only effective in those industries
where dynamic pricing is new. Thus, in Study 2, to generalize our re-
sults, dynamic bundling is assessed in the hotel and airline industries
where dynamic pricing has been practiced for a long time (Wirtz and
Kimes, 2007) and consumers have become more accepting of dynamic
pricing (Kimes, 2002). In Study 2, we will also examine the predicted
serial mediation whereby dynamic bundling (vs. dynamic pricing) in-
creases perceived dissimilarity among the transactions. In turn, this
enhanced transaction dissimilarity reduces consumers’ comparison in-
tentions and, ultimately, mitigates unfairness perceptions (i.e., pricing
strategy → perceived transaction dissimilarity → comparison intentions
207
W. Li et al.
Table 2
Correlations between different constructs.
Fair_ticket Fair_hotel Fair
bundle
Fair_ticket 1.00 .716** .700**
Fair_hotel .716** 1.00 .795**
Fair_bundle .700** .795** 1.00
Comparison Intentions − .204** − .125* − .190**
Perceived dissimilarity .208** .154** .225**
Discount expectations − .024 .028 .043
** Correlation is significant at the .01 level (2-tailed).
* Correlation is significant at the .05 level (2-tailed).
→ fairness perceptions).
Although we will test our proposed model, two alternative ex-
planations could potentially account for our results. First, our partici-
pants could allocate a higher price for the main product in the bundle
paid by the other consumers, resulting in enhanced fairness perceptions
for the price they paid for the main product. To account for this pos-
sibility, we measure estimated prices for both the main product (airline
ticket) and the tie-in product (hotel room) in Study 2. In addition, we
assess fairness perceptions for the tie-in product and the bundle to
determine the unique effects for each associated with dynamic bund-
ling.
In addition, unlike participants in the dynamic pricing conditions
who were told a specific price they paid for the main product, partici-
pants in the dynamic bundling condition were only provided with a
total price for the bundle. Although the price for the tie-in product was
based on a pretest, participants could still feel uncertain about the price
of the tie-in product, especially when the tie-in product was bundled
with another product. This uncertainty in the price of the product in the
bundle could explain our results. As such, we ask participants to in-
dicate their confidence levels for the estimated prices.
3.3. Study 2
3.3.1. Method
A pretest with 33 undergraduates was conducted to determine a
price for a hotel room used in the main study. Participants were asked
to provide an average price for a standard room for one night at the
Holiday Inn near the Chicago airport. The average price was estimated
to be $175 per night.
Three hundred and forty-nine undergraduates participated in the
study for course credit and were randomly assigned to one of two
conditions: dynamic bundling or dynamic pricing. As in previous stu-
dies, the dynamic component of dynamic pricing was manipulated on
the consumer dimension such that different consumers were charged
different prices for the same airline ticket. In the study, participants
read instructions asking them to imagine that they were taking a trip to
visit a friend in Chicago for the weekend (see Appendix B for the sce-
narios used). On the airplane, they were talking to the person sitting
next to them. In the dynamic bundling condition, participants were told
that they paid $390 for this round-trip airline ticket, while the person
sitting next to them paid $640 for both the round-trip airline ticket and
a standard room for two nights ($175 * 2 = $350) at the Holiday Inn
near the airport. In the dynamic pricing condition, participants were
told that they paid $390 for this round-trip airline ticket, while the
person sitting next to them paid $290 for the same airline ticket. The
pretested price of $175 per night for the hotel room was used to make
the conditions economically equivalent. To be consistent with the dy-
namic bundling condition, the scenario also described this person as
booking a standard room for two nights at the Holiday Inn near the
airport. Since the timing of booking an airline ticket and booking
agency play crucial roles in determining the price of an airline ticket,
we fixed these two variables by telling participants that both of them
Journal of Retailing and Consumer Services 40 (2018) 204–212
Comparison intentions Perceived dissimilarity Discount expectations
− .204** .208** − .024
− .125* .154** .028
− .190** .225** .043
1.00 − .208** .132*
− .208** 1.00 .114*
.132* .114* 1.00
purchased this airline ticket from Travelocity on the same day.
After reading the scenarios, they were asked to indicate their fair-
ness perceptions (α = .93) toward the price they paid for the airline
ticket and their price fairness perceptions of the hotel room (α = .97)
and the bundle (α = .97). Then, they responded to the measure of
comparison intentions (“I am unlikely to compare my purchase with the
other passenger's purchase.” anchored at 1 = “strongly disagree”, 9 =
“strongly agree”) (Xia and Monroe, 2005). This item was reverse coded
so that higher scores reflect higher comparison intentions. Next, they
responded to three items assessing perceived transaction dissimilarity
(“I think my purchase is different from the purchase of the other pas-
senger sitting next to me,” “My purchase is unlike the purchase of the
other passenger sitting next to me,” and “The other passenger's pur-
chase is not similar to mine.” anchored at 1 = “strongly disagree”, 9 =
“strongly agree”, α = .82) (Weisstein et al., 2013; Xia and Monroe,
2005). We also asked participants to provide their estimated prices for
this round-trip airline ticket and the hotel room and their confidence
levels about the estimated prices. Finally, their discount expectations
for the bundle were collected (see Table 2 for the correlations between
constructs).
3.3.2. Results
Two participants’ estimated prices for the airline ticket fell outside
three standard deviations above the mean leaving 347 usable responses.
3.3.2.1. Dynamic pricing manipulation check. To see whether
participants in the dynamic bundling condition perceived the price of
the airline ticket as significantly different from the given price of $390,
we ran a one-sample T-test to compare the estimated price of the airline
ticket in the dynamic bundling condition with $390. The results from
the T-test indicated that there was a significant difference between
these two prices (M = $353.41, t (173) = − 4.86, p < .01). Thus, our
participants in the dynamic bundling condition perceived the price of
the airline ticket as different from the given price of $390. These results
provided support for our dynamic pricing manipulation.
3.3.2.2. Fairness perceptions. We conducted a MANCOVA with pricing
strategy (dynamic bundling vs. dynamic pricing) as the independent
variable and price fairness perceptions of the airline ticket, hotel room,
and bundle serving as the dependent variables, controlling for discount
expectations. The MANCOVA results revealed that pricing strategy had
a significant impact on price fairness perceptions (Wilks's Lambda F (3,
342) = 89.16, p < .01). Discount expectations were not significant as a
control variable (Wilks's Lambda F (3, 342) = .99, p > .3). Consistent
with the results of Study 1, participants in the dynamic bundling
condition perceived the price they paid for the airline ticket as
significantly fairer than that of the dynamic pricing condition
(Mdynamic bundling = 5.82, Mdynamic pricing = 2.79; F (1, 344) =
268.34, p < .01; R2 = .44). The results for price fairness perceptions
of the hotel room and the bundle followed the same patterns. The price
of the hotel room was perceived as fairer in the dynamic bundling
condition (M = 5.85) than in the dynamic pricing condition (M = 3.85;
208
W. Li et al.
Fig. 2. Study 2 serial mediation results. Note: * = p < .05; ** = p < .01.
F (1, 344) = 104.21, p < .01; R2 = .23). The same results were found
for the price fairness perceptions of the bundle (Mdynamic bundling =
6.07, Mdynamic pricing = 3.94; F (1, 344) = 104.41, p < .01; R2 = .23).
Thus, dynamic bundling not only enhanced the price fairness
perceptions of the main product, but also that of the tie-in product
and the bundle.
3.3.2.3. Test of mediation. We then tested the predicted serial
mediation (pricing strategy → perceived transaction dissimilarity →
comparison intentions → fairness perceptions of the airline) controlling
for discount expectations. A bootstrap analysis with 5000 samples
(Model 6, Preacher and Hayes, 2008) indicated that the full serial
mediation model was significant (indirect effect = .01, SE = .01, 95%
CI = .0021–.0406) (see Fig. 2). Dynamic bundling increased perceived
transaction dissimilarity. The enhanced transaction dissimilarity
reduced our participants’ comparison intentions, while the decrease
in comparison intentions led to higher fairness perceptions.
To account for the potential alternative explanations associated
with the price estimates of the airline ticket and the hotel room and the
confidence participants have in each of these estimates, we ran a second
serial mediation controlling for these four factors on price fairness
perceptions. The results still revealed a significant indirect effect (in-
direct effect = .01, SE = .01, 95% CI = .0021–.0420) when controlling
for these variables.
We also ran four additional simple mediation models (Model 4) with
the estimated price of the airline ticket and the hotel room and their
confidence levels of the estimations each as the mediator, controlling
for discount expectations. None of these mediation models was sig-
nificant.
The results of Study 2 provide further support for the effectiveness
of dynamic bundling, as well as the underlying process associated with
the effect. Not only does dynamic bundling enhance fairness percep-
tions of the price of the main product, it also boosts the fairness per-
ceptions of the prices of the tie-in product and the bundle overall. More
importantly, we rule out several potential alternative explanations.
Thus far, we have only compared dynamic bundling with dynamic
pricing and shown that dynamic bundling results in higher fairness
perceptions than dynamic pricing. If we can demonstrate that dynamic
bundling leads to price fairness perceptions as fair as fixed pricing,
firms may feel more confident in implementing dynamic bundling. In
Study 3, we directly compare dynamic bundling with fixed pricing to
assess their relative impact on price fairness perceptions.
3.4. Study 3
3.4.1. Method
Study 3 used the same scenarios provided in Study 2, but added two
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Journal of Retailing and Consumer Services 40 (2018) 204–212
fixed pricing conditions: fixed pricing with bundling and fixed pricing
without bundling (see Appendix C). In the fixed pricing conditions, the
prices both consumers paid for the airline ticket were the same. Ninety-
five undergraduate students participated for partial course credit. The
study used a 2 (pricing strategy: dynamic pricing or fixed pricing) × 2
(bundling type: bundling or without bundling) between-subject design.
Participants were randomly assigned to one of the conditions. In the
fixed pricing with bundling condition, participants were told that they
paid $390 for the round-trip airline ticket, while the person sitting next
to them paid $740 for both the round-trip airline ticket and a standard
room for two nights at the Holiday Inn near the Chicago airport. In the
fixed pricing without bundling condition, participants were told that
they paid $390 for the round-trip airline ticket and the person sitting
next to them paid $390 for the same ticket. To be consistent with the
dynamic/fixed bundling conditions, the scenario also described this
person as booking a standard room for two nights at the Holiday Inn
near the Chicago airport. The timing of booking the ticket and the
booking agency were controlled at the end of these two scenarios as
they were in the two dynamic pricing conditions.
After reading the scenario, participants indicated their fairness
perceptions (α = .89) toward the price they paid for this airline ticket.
Then, they completed a manipulation check for the pricing strategy.
They were asked to indicate how stable the price of the airline ticket
was on a nine-point scale (1 = “very unstable,” 9 = “very stable”).
Finally, their discount expectations for the bundle were collected.
3.4.2. Results
3.4.2.1. Manipulation check. Participants in the dynamic pricing
conditions perceived the price of the airline ticket to be significantly
less stable (Mdynamic pricing = 4.04) than those in the fixed pricing
conditions (Mfixed pricing = 5.90; F (1, 93) =18.67, p < .01). These
results supported our pricing strategy manipulations as the price in the
fixed pricing condition was deemed more stable than that in the
dynamic pricing condition.
3.4.2.2. Fairness perceptions. We conducted an ANCOVA with the
fairness perceptions as the dependent measure and pricing strategy
(dynamic pricing vs. fixed pricing) and bundling type (bundling vs.
without bundling) as predictors, controlling for discount expectations.
Discount expectations were not significant as a control variable (F (1,
90) = 1.00, p > .3). Both of the main effects of pricing strategy (F (1,
90) = 5.47, p = .02) and bundling type (F (1, 90) = 6.97 p = .01)
were significant. More importantly, the interaction between pricing
strategy and bundling type was significant (F (1, 90) = 19.55, p < .01;
R2 = .27) (see Fig. 3). Specifically, among participants in the dynamic
pricing conditions, those who are also in the bundling condition
perceived the price they paid for the airline ticket as fairer than those
in the without bundling condition (Mbundling = 6.32, Mwithout bundling =
3.92; F (1, 90) = 25.26, p < .01). In the fixed pricing conditions, there
Fig. 3. Study 3 results. R2 = .27.
W. Li et al.
was no significant difference for fairness perceptions between the
bundling and without bundling conditions (Mbundling = 5.60, Mwithout
bundling = 6.21; F (1, 90) = 1.61, p > .1).
To directly compare dynamic bundling with fixed pricing, we ran an
additional ANCOVA with the following three conditions: dynamic pri-
cing with bundling, fixed pricing with bundling, and fixed pricing
without bundling, controlling for discount expectations. The results
indicated that there was no significant difference in fairness perceptions
across these three conditions (F (1, 68) = 1.20, p > .3). Thus, dynamic
bundling leads to price perceptions as fair as those of fixed pricing. We
re-ran all the analyses without discount expectations as the control
variable and all of the results still held.
The results of Study 3 replicate the results of our previous studies
that dynamic bundling leads to greater fairness perceptions than dy-
namic pricing. Additionally, in Study 3, we found that dynamic bund-
ling and fixed pricing generate similar fairness perceptions. As such,
given that dynamic bundling can extract consumer surplus to help firms
increase their profitability, firms should consider dynamic bundling as a
superior pricing strategy over fixed pricing.
4. General discussion
Although dynamic pricing helps increase firms’ profitability, it also
can arouse consumer unfairness perceptions (Haws and Bearden, 2006;
Petro, 2015). The current research offers a solution for this problem by
recommending a new pricing strategy, dynamic bundling. The results
from three studies provide evidence that when compared with dynamic
pricing, dynamic bundling not only leads to higher fairness perceptions,
but also generates perceptions as fair as those of fixed pricing. This
effect emerged across multiple types of products and scenarios. Our
studies also identify a novel underlying mechanism for pricing research,
while ruling out a number of alternative explanations. Dynamic bund-
ling increases the perceived dissimilarity among transactions making
consumers less likely to make a comparison. In turn, the reduced
comparison intentions reduce the probability of creating unfairness
perceptions. We provide further support for the proposed mechanism
by addressing potential alternative explanations. Specifically, we de-
monstrate that dynamic bundling enhances fairness perceptions beyond
the effect of consumers’ discount expectations for the bundles. Our
studies further eliminate estimated prices of the products in the bundle
and uncertainty as to the external reference price of the tie-in product
as alternative explanations. By proposing a new pricing strategy and
establishing its effectiveness, we offer several important theoretical and
managerial implications.
4.1. Theoretical implications
Our research contributes to the dynamic pricing literature. We use
social comparison and equity theory (Adams, 1965) to explain why
dynamic pricing is likely to arouse unfairness perceptions. We de-
monstrate that the current practice of dynamic pricing leads to high
perceived transaction similarity prompting consumers to compare their
transactions. By identifying the important roles of perceived transaction
dissimilarity and comparison intentions, we are able to introduce a new
pricing strategy to address the problem of unfairness perceptions.
Our research also provides important theoretical implications for
the literature on bundling. While previous research on bundling has
found numerous benefits for using it, such as extracting consumer
surplus (Venkatesh and Mahajan, 2009), increasing purchase intentions
(Johnson et al., 1999; Arora, 2008), enhancing perceived value
(Andrews et al., 2010), introducing new products (Sheng and Pan,
2009), and differentiating products and services (Dominique-Ferreira
et al., 2016), none of this research has introduced or measured the
impact of dynamic bundling on price fairness perceptions. All of the
previous research examined the impact of bundling alone on current
profitability. Additionally, none of the previous research utilized
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Journal of Retailing and Consumer Services 40 (2018) 204–212
transaction dissimilarity to reduce fairness perceptions in a dynamic
pricing context. Further, previous research has not empirically de-
monstrated the role comparison intentions play in a dynamic pricing
context.
The current research focuses on price fairness perceptions that may
ultimately impact long-term profitability. We contribute to the existing
literature on bundling by demonstrating that it can be used with dy-
namic pricing to mitigate unfairness perceptions associated with dy-
namic pricing. We also provide a process explanation as to why
bundling has this effect. The results from our studies provide evidence
that bundling alleviates unfairness perceptions by increasing perceived
transaction dissimilarity and, in turn, decreasing consumers’ compar-
ison intentions.
4.2. Managerial implications
Our research provides insight as to how firms could implement
dynamic pricing without fostering unfairness perceptions. When using
dynamic pricing, firms could combine it with bundling to alleviate the
negative effect on consumer fairness perceptions. Essentially, we pro-
vide firms a new pricing strategy, dynamic bundling. With the aid of the
Internet and digital media, consumers can easily compare and share
price information. Our research provides marketers with a timely so-
lution and an easy-to-implement tool.
An additional practical implication of our research lies in the find-
ings that perceived transaction dissimilarity and comparison intentions
account for why dynamic bundling results in higher fairness percep-
tions. By bundling different products together, firms increase perceived
transaction dissimilarity among the transactions. The high level of
dissimilarity makes consumers less likely to compare their transactions.
Thus, for firms who want to implement dynamic pricing, they should
reduce consumers’ intentions to compare transactions. Customized
coupons is another strategy firms can use to serve this purpose.
Depending upon consumers’ profiles or interests, and their purchase
history, different consumers will receive different types of coupons.
These different coupons will increase perceived transaction dissim-
ilarity thereby reducing consumer comparison intentions.
Our results also provide a new factor for firms to take into account
when they decide whether to use bundling. Although previous research
suggests numerous reasons for using bundling, most highlight the
economic impact on current transactions. None has explored the impact
of bundling on fairness perceptions, which may impact multiple eco-
nomic measures.
4.3. Limitations and future research
Although we have demonstrated the superiority of dynamic bund-
ling on the impact of fairness perceptions relative to dynamic pricing,
there are some limitations associated with the current research. The
primary limitation of our research is that we use lab-based experiments
to assess the effectiveness of dynamic bundling. Future field research is
needed, especially to examine the impact of dynamic bundling on
consumer surplus extraction. Both dynamic pricing and bundling have
been found to be able to extract consumer surplus (Adams and Yellen,
1976; Venkatesh and Mahajan, 2009). Thus, we expect that dynamic
bundling, the combination of these two strategies, could extract con-
sumer surplus beyond dynamic pricing. Future research should em-
pirically test whether dynamic bundling has the additional benefit of
extracting consumer surplus beyond dynamic pricing. Perhaps panel
data could be used by future researchers to assess this and further ex-
amine the role of social comparison by combining panel data with
consumer surveys.
In addition, future research should investigate the need for cogni-
tion as a boundary condition for the effectiveness of dynamic bundling.
Perhaps those whose need for cognition is high will not be aided by the
increased price fairness perceptions associated with dynamic bundling.
W. Li et al.
Another boundary condition future research can examine is consumer
status (existing vs. new consumers). Fernandes and Calamote (2016)
found that new vs. existing clients and the advantaged vs. dis-
advantaged condition affect consumers’ price fairness perceptions. Ex-
isting customers (vs. new customers) demonstrated the strongest un-
fairness perceptions when exposed to a disadvantaged price condition.
Thus, future research could examine whether consumer status (existing
vs. new) influences the effectiveness of dynamic bundling. Finally, fu-
ture researchers can assess whether dynamic bundling is even more
effective for unfamiliar brands. It is our hope that the introduction of
the dynamic bundling strategy will spur future research into a greater
understanding of its effectiveness
Appendix A. Study 1 scenarios
Dynamic bundling condition
Imagine that you are working on a study-related task with some
fellow students. One of the students in the group is wearing a new coat
you also have. When you talk with this student, you find out that you
both purchased the coat from the same store around the same time. You
paid $79 for this coat. This student paid $144 for this coat and a pair of
high-end American Eagle jeans.
Dynamic pricing condition
Imagine that you are working on a study-related task with some
fellow students. One of the students in the group is wearing a new coat
you also have. When you talk with this student, you find out that you
both purchased the coat from the same store around the same time. You
paid $79 for this coat. This student paid $55 for this coat. This student
also purchased a pair of high-end American Eagle jeans.
Appendix B. Studies 2 scenarios
Dynamic bundling condition
Imagine that you are taking a trip to visit a friend in Chicago for the
weekend. When you talk with the person sitting next to you on the
airplane, you find out that this person is about the same age and paid
$640 for both this round-trip airline ticket and a standard room for two
nights at the Holiday Inn near the airport. You paid $390 for the exact
same round-trip airplane ticket. You both purchased from Travelocity
on the same day.
Dynamic pricing without bundling condition
Imagine that you are taking a trip to visit a friend in Chicago for the
weekend. When you talk with the person sitting next to you on the
airplane, you find out that this person is about the same age and paid
$290 for this round-trip airline ticket to Chicago. This person has also
booked a standard room for two nights at the Holiday Inn near the
airport. You paid $390 for the exact same round-trip airline ticket. You
both purchased from Travelocity on the same day.
Appendix C. Study 3 scenarios
Fixed pricing with bundling condition
Imagine that you are taking a trip to visit a friend in Chicago for the
weekend. When you talk with the person sitting next to you on the
airplane, you find out that this person is about the same age and paid
$740 for both this round-trip airline ticket and a standard room for two
nights at the Holiday Inn near the airport. You paid $390 for the exact
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Journal of Retailing and Consumer Services 40 (2018) 204–212
same round-trip airline ticket. You both purchased from Travelocity on
the same day.
Fixed pricing without bundling condition
Imagine that you are taking a trip to visit a friend in Chicago for the
weekend. When you talk with the person sitting next to you on the
airplane, you find out that this person is about the same age and paid
$390 for this round-trip airline ticket to Chicago. This person has also
booked a standard room for two nights at the Holiday Inn near the
airport. You paid $390 for the exact same round-trip airline ticket. You
both purchased from Travelocity on the same day.
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