MARGARET C.

CAMPBELL *

Using two studies, the author examines the influence of the inferred
motive for a firm's price increase on perceptions of price unfairness. Prior
to the research presented here, the only established causal antecedent
of perceived price unfairness was increased relative profit. In Study 1, the
author extends the existing research by demonstrating that the inferred
motive, as well as inferred relative profit, provides causal explanation of
perceived price unfairness. When participants inferred that the firm had a
negative motive for a price increase, the increase was perceived as sig-
nificantly less fair than the same increase when participants inferred that
the firm had a positive motive. In addition, the author shows in Study 2
that the firm's reputation can influence the inferred motive, thereby alter-
ing perceptions of price unfairness. Specifically, participants sometimes
gave a firm with a good reputation the benefit of the doubt when inferring
motive. If the "good" firm did not profit from the price increase, participants
inferred significantly more positive motives than if it did profit. The firm
with a poor reputation did not receive this benefit; inferred motive was
equally negative regardless of whether the firm profited from the price
increase. Together, these studies provide evidence that consumer infer-
ences of the motive for a price increase influence the perceived fairness
of the increase. Furthermore, reputation is shown to moderate the effect
of inferred relative profit on inferred motive. Finally, analyses show that
perceived unfairness leads to lower shopping intentions and demonstrate
that perceived unfairness mediates the effects of inferred motive and
relative price on consumers' shopping intentions.

Perceptions of Price Unfairness:

Antecedents and Consequences

A critical activity for many marketing managers is to
establish product pricing strategy. To set effective prices, the
marketer attempts to predict how consumers are likely to
respond to different price points or price changes. Research
has established the importance of the psychological under-
pinnings of price perception and demonstrated that a variety
of psychological factors influence consumers' responses to
price (Kamen and Toman 1970; Monroe 1973). To manage
*Margaret C. Campbell is Assistant Professor of Marketing, Anderson
Graduate School of Management, University of California at Los Angeles
(e-mail: meg.campbell@anderson.ucla.edu). Financial assistance from the
UCLA Marketing Study Center and the UCLA Academic Senate is grate-
fully acknowledged. The valuable comments of Hal Kassarjian, Bill
McKelvey, Donald Morrison, Atanu Sinha, Joel E. Urbany, Bernie Wiener,
and seminar participants at the University of Washington, the University of
Illinois Pricing Camp, and the Marketing Science Institute Behavioral
Pricing Conference are greatly appreciated. The author also thanks the edi-
tor and four anonymous JMR reviewers for useful suggestions during the
review process. To interact with colleagues on specific articles in this issue,
see "Feedback" on the JMR Web site at www.ama.orglpubs/jmr.
pricing decisions effectively, the marketer must be able to
understand both economic and psychological responses to
various prices and price changes.
Perceived price fairness has been identified as one psy-
chological factor that exerts an important influence on con-
sumers' reactions to prices (e.g., Etzioni 1988; Kahneman,
Knetsch, and Thaler 1986a, b). Research suggests that con-
sumers sometimes are concerned with the fairness of a price,
particularly of a price increase, and that they dislike and are
often unwilling to pay a price that is perceived as unfair
(e.g., Kahneman, Knetsch, and Thaler 1986a, b; Martins and
Monroe 1994; Urbany, Madden, and Dickson 1989).
Although there is some disagreement as to the duration of
the effect (i.e., whether it is short- or long-run), experimen-
tal data consistently indicate that consumers often resist
price increases that are perceived as unfair. Thus, regardless
of the duration of the effect, consumer resistance can result
in lower overall profit to the firm (Franciosi et al. 1995;
Kachelmeier, Limberg, and Schadewald 1991). In addition,
negative consumer reactions to perceived unfair prices can
result in consumer boycotts (e.g., Goldman 1994), civil

Journal of Marketing Research

187 Vol. XXXVI (May 1999), 187-199
188
Figure 1
RELATIONS AMONG ANTECEDENTS AND CONSEQUENCES
OF PERCEIVED UNFAIRNESS
action (Kaufmann, Ortmeyer, and Smith 1991), or lower
sales (Grover 1994).
Although research establishes the importance of con-
sumers' perceptions of price unfairness to marketers' pricing
decisions, the critical question of "what is fair?" has not
been answered thoroughly. Much of the work to date does
not examine what causes a price to be perceived as fair or
unfair; there is not yet a complete understanding of factors
that influence perceived unfairness (Franciosi et al. 1995;
Kalapurakal, Dickson, and Urbany 1990). Identifying
antecedents of price unfairness will aid marketing managers
in developing pricing strategy and is necessary for a more
comprehensive understanding of perceived price unfairness
and a more general theory of price.
The objective of this research is to identify factors that
influence consumers' perceptions of price fairness. Drawing
from the literature on fairness and attribution theory, I iden-
tify two factors that directly affect the perceived fairness of
a price change: inferred relative profit and consumers' infer-
ences about the firm's motive for the price change. Further-
more, I identify a factor that indirectly affects perceptions of
price fairness by influencing inferred motive. Specifically,
drawing from research on reputation effects, I propose that
the firm's prior reputation can affect inferred motive by
moderating the impact of inferred relative profit on inferred
motive. Study 1 examines the proposed effects of relative
profit and inferred motive, showing that both these factors
influence perceptions of price fairness, as predicted. The
results indicate that a consumer perceives a price increase as
unfair when he or she infers that the firm has a negative
motive (i.e., that the firm is trying to take advantage of or
exploit consumers in one way or another) whether or not the
price change increases the firm's profit. If, conversely, the
consumer infers that the firm has some positive motive for
the price change, perceptions of unfairness are attenuated.
Study 2 examines the interaction between the firm's prior
reputation and inferred relative profit. The results demon-
strate an asymmetric effect of the firm's reputation on
inferred motive. Reputation moderates the effect of inferred
relative profit on inferences that are made about the firm's
motive, thereby indirectly influencing perceptions of price
fairness. A schematic of the proposed effects appears in Fig-
ure 1.
THE PRINCIPLE OF DUAL ENTITLEMENT
Kahneman, Knetsch, and Thaler (1986a, b) use both
experimental and survey research to identify situations that
consumers perceived as fair or unfair. For example, con-
sumers were presented with a variety of scenarios in which
a firm makes a pricing decision; consumers then provided
evaluations of the fairness of the described prices. Two of
JOURNAL OF MARKETING RESEARCH, MAY 1999
these scenarios follow (Kahneman, Knetsch, and Thaler
1986b, pp. 732-33):
Question 7. Suppose that, due to a transportation mix-
up, there is a local shortage of lettuce and
the wholesale price has increased. A local
grocerhas boughtthe usual quantity of let-
tuce at a price that is 30 cents per head
higher than normal. The grocer raises the
price of lettuce to customers by 30 cents
per head.
(N = lOl) Acceptable 79% Unfair21%
Question 10. A grocery store has several months' sup-
ply of peanutbutter in stock, which it has
on the shelves and in the storeroom. The
owner hears that the wholesale price of
peanut butter has increased and immedi-
ately raises the priceon the current stock
of peanutbutter.
(N = 147)Acceptable 21% Unfair79%
The high degree of consistency among which scenarios
the surveyed consumers found to be fair and which were
perceived as unfair indicates that there are existing commu-
nity standards for setting fair prices. The overall pattern of
findings led Kahneman, Knetsch, and Thaler (l986b) to
suggest that market behavior is affected by goals in addition
to the purely self-interested rational utility maximization
assumed in neoclassical economic theory. Specifically,
Kahneman, Knetsch, and Thaler (1986b, p. 729) propose the
"principle of dual entitlement," which suggests that per-
ceived unfairness results when a price is increased (a viola-
tion of the reference price) such that a firm increases the
profit (violating the reference profit), but that an increased
price is perceived as fair when it maintains the firm's exist-
ing level of profit.
The principle of dual entitlement indicates that consumers
have a sense of a reference transaction (the price and other
conditions of the sale, often based on the status quo) and that
the perception of the fairness of a change from the reference
price is judged relative to this. Kahneman, Knetsch, and
Thaler (1986b) suggest that consumers perceive unfairness
when they view a firm's pricing actions as violating the ref-
erence price without the "excuse" of maintaining the firm's
reference profit (as in the peanut butter example, in which
the firm had not yet incurred any greater costs and, thus, an
increased price was regarded as unfair). Price increases that
appear justified by increased costs to the firm, conversely,
are perceived as fair (as in the lettuce example, in which the
firm was perceived as passing on increased costs incurred
by the firm).
The principle of dual entitlement presents a parsimonious
explanation for much of the data reported by Kahneman,
Knetsch, and Thaler (1986a, b), which suggests that con-
sumers' inferences of relative profit (i.e., profit resulting
from the price change, relative to reference profit) is one
factor in how consumers assess the fairness of a price
increase. Experimental research examining this issue pro-
vides support for the role of inferred relative profit in per-
ceptions of fairness; subjects find prices unfair when they
are perceived to lead to increased profit for the firm but
more fair when they are not perceived to increase profit
(Franciosi et al. 1995; Kachelmeier, Limberg, and Schade-
Perceptions of Price Unfairness
wald 1991). However, it is not clear that the relative profit
effect suggested by the principle of dual entitlement fully
captures all factors that lead to perceptions of price unfair-
ness. Evidence suggests that there may be justifications for
a price change, in addition to that of maintaining reference
profit, that mitigate perceptions of unfairness (Dickson and
Kalapurakal 1994; Kalapurakal, Dickson, and Urbany
1990).
The research presented here expands on the principle of
dual entitlement and suggests an additional factor that leads
to perceptions of price unfairness, namely, inferred motive.
The prediction is that consumers respond to more than just
the extent to which a price change is inferred to increase the
firm's profit and make additional inferences about the firm's
motive. Specifically, this article presents and explores the
concept that, though consumers assume that firms are gen-
erally profit-seeking, they make richer inferences about the
marketer's particular motive or intention for a given price
increase (i.e., what moved or induced the firm to take the
price action) and that the inferred motive influences percep-
tions of unfairness. Some motives for a price will be per-
ceived as positive or benevolent (e.g., desire to help a char-
ity), whereas others will be perceived as negative or greedy
(e.g., desire to exploit sudden increased consumer demand),
depending on the extent to which the motive is perceived to
take advantage of or exploit consumers.
If inferred motive has the predicted direct impact on per-
ceptions of price fairness, factors that influence inferred
motive will affect perceived price fairness indirectly. The
research presented here proposes that the firm's reputation is
one such factor. This research hypothesizes and tests
whether the firm's reputation moderates the impact of
inferred relative profit on inferred motive. When the firm
has a good reputation, the inferred relative profit will influ-
ence inferred motive, but this will not be the case when the
firm has a poor reputation.
The research presented here contributes to the existing
understanding of perceptions of price unfairness by propos-
ing that these perceptions are influenced by qualitative (i.e.,
motive), as well as quantitative (i.e., relative profit), infer-
ences about the firm. This research identifies inferred
motive as an antecedent of perceived price unfairness while
providing new support for the antecedent role of inferred
relative profit. This research further contributes to the liter-
ature by demonstrating that a contextual factor, namely, the
firm's reputation, influences inferred motive, thereby affect-
ing consumers' perceptions of price fairness.
TOWARD AN "INFERRED MOTIVE" THEORY OF
PERCEIVED PRICE UNFAIRNESS
Attribution theory and related streams of research provide
insight to the inferences that people make when they won-
der why an event occurred. This research thus can assist in
understanding consumers' inferences about why a firm
increased a price above the reference price. Attribution
research indicates that people are likely to search for causal
explanations for an event when the event is surprising
and/or negative (Folkes 1988; Weiner 1985). An unexpected
price increase is both surprising and negative for consumers
and thus is likely to lead to consumer consideration of why
the firm raised the price. It should be noted that this idea is
consistent with Kahneman, Knetsch, and Thaler's (1986a, b)
189
suggestion that fairness is considered when a price increase
violates the reference transaction.
Attribution research finds that the specific attributions
made for an act or event, as well as the resulting affective
and cognitive responses, are influenced by the intentions or
motives inferred (for a review, see Weiner 1992). For exam-
ple, consider a situation in which Person A drops his papers
and another person steps on them. Person A will make a dif-
ferent attribution and respond differently if he infers that the
other person stepped on his papers with the motive to keep
them from blowing away than if he infers that the person's
motive was to damage the papers (Graham, Hudley, and
Williams 1992). An act is perceived and evaluated nega-
tively when it is inferred to arise from a negative motive on
the part of the actor. When negative motive is inferred, the
perceived responsibility of the actor increases, and the
behavior may be perceived as aggressive or unfair (Betan-
court and Blair 1992; Dodge and Coie 1987; Fincham and
Jaspars 1980; Kidd and Utne 1978; Weiner 1995). This
attribution-based research demonstrates that inferences of
negative motives lead to negative attributions and
responses.
Research also demonstrates that justifications or explana-
tions for an act influence perceptions offairness (Bies 1986,
1987; Bies and Shapiro 1987; Brockner and Greenberg
1989; Fincham and Jaspers 1980; Greenberg 1988). For
example, when a justification for a negative outcome is pro-
vided, the outcome is perceived as more fair than when the
same outcome arises with no justification offered (Bies and
Shapiro 1988). Explanations perceived to demonstrate "neg-
ative" (e.g., insincere or manipulative) motives increase per-
ceived unfairness (Greenberg and Ornstein 1983). Overall,
"it is the point of these studies that accounts of mitigating
circumstances discourage persons ... from attributing malev-
olent motives to the decision-maker" (Greenberg 1990, p.
130).
In summary, research from the attributional perspective
indicates that people make inferences about motives and that
whether the inferred motive is positive or negative influ-
ences perceptions of the act. I extend this research and sug-
gest that the factor of inferred motive is likely to provide
insight to when a price increase is likely to be perceived as
fair or unfair. I propose that consumers sometimes will make
inferences about the specific motive a finn has for a price
increase. If the consumer sees an increase and attributes it to
the finn's negative motive, such as a motive to take advan-
tage of a sudden increase in consumer need, the price will be
perceived as unfair. In contrast, if the price is attributed to a
positive or benevolent motive, such as to aid a good cause or
equitably distribute a scarce good, it will be perceived as fair.
As noted previously, the current literature on perceptions of
price fairness suggests that inferred relative profit is an
important factor that influences perceptions of price unfair-
ness. I add to this literature by proposing that inferred motive
is another factor that influences perceptions of price fairness.
HI: The violation of reference profit will influence perceived
faimess such that, when the consumer infers that a price re-
sults in more than normal profit, the price will be perceived
as unfair relative to when the consumer infers that the prof-
it is no more than normal.
H2: The motive attributed to the firm will influence perceived
fairness suchthat,whentheconsumer infers thatthefirm has
190
a negative motive, the pricewill be perceived as unfairrela-
tive to when the consumer does not infera negative motive.
HI' following previous research, posits an effect of
inferred relative profit. H2 proposes an additional effect of
inferred motive, such that the same price will be perceived
as fair or unfair depending on the inferred motive of the
price setter. Similar to Kahneman, Knetsch, and Thaler's
(l986a, b), this conceptualization suggests that consumers
respond to the perceived reasons for the price and that one
"justifiable" reason for a price increase is to protect refer-
ence profit. Furthermore, this expands on previous work by
suggesting that there are many reasons, in addition to that of
needing to preserve reference profit, that can mitigate per-
ceptions of unfairness. Not only do consumers care about
the quantitative profit earned by the firm, but they also care
about the qualitative character of the price setter's motives.
For example, consumers are likely to perceive an increased
price for bottled water following an earthquake as unfair;
they are likely to infer that the retailer is (l) making addi-
tional profit and (2) motivated to take advantage of con-
sumers' increase in demand. Information on both profit
(e.g., shipping costs to the retailer have increased because of
disruptions in distribution) and motive (e.g., the retailer is
raising the price to ration bottles of water to prevent a stock-
out) are proposed to attenuate perceptions of unfairness. In
short, in addition to inferred relative profit, a salient justifi-
able or positive motive will mitigate the perceived unfair-
ness of a price increase by reducing inferences of negative
motive.
REPUTATION AND INFERRED MOTIVE
An important implication of the presented framework is
that understanding of perceived price fairness can be
increased by identifying factors that affect the motives that
consumers infer. Factors that influence the inferred motive
will affect perceived price fairness indirectly. Specifically,
factors that limit inferences of negative motives or increase
inferences of positive motives will lead to perceptions of
fairer prices.
A firm's reputation is one factor that is likely to affect
inferred motive. Reputation is based on the history of the
firm's past actions. Existing research indicates that con-
sumers, as well as competitors, sometimes use the reputa-
tion of a firm to make inferences about it (Herbig and
Milewicz 1993; Herbig, Milewicz, and Golden 1994;
Shapiro 1982). This research indicates that consumers
believe they can infer current motives and predict future
actions of the firm by using their understanding of the firm's
past motives and behaviors, as indicated by the firm's repu-
tation. Motives are inferred that seem to be consistent with
the firm's prior reputation.
An important aspect of reputation is that a good reputa-
tion is believed to have "goodwill" value (Shapiro 1982).
That is, a good reputation is expected to gain greater
leniency from consumers and soften consumers' reactions to
firms' actions. Reputation thus is expected to moderate the
impact of other variables on consumers' inferences, percep-
tions, and responses. For example, one study finds that rep-
utation interacts with the extremity of advertising claim
information; when an advertising claim is extreme, a firm
with a good reputation appears to be given the benefit of the
JOURNAL OF MARKETING RESEARCH, MAY 1999
doubt in terms of inferences of credibility, whereas a firm
with a poor reputation is not (Goldberg and Hartwick 1990).
Following on this, I expect reputation to influence the
inferences of motive a consumer makes when exposed to a
price increase by moderating the impact of inferred profit on
inferred motive. When the pricing situation suggests the
possibility that the firm has a negative motive, the firm's
reputation will affect whether the inferred profit influences
inferred motives. Specifically, the goodwill value of a good
reputation is such that the consumer will use his or her infer-
ences of relative profit to infer the motive of the firm for
raising the price. When consumers infer that the price
increase did not result in increased profit to the firm, they
will give a firm with a good reputation the benefit of the
doubt, inferring good motives for the firm's price increase,
even though the situation suggests the possibility of bad
motives. However, when consumers infer that relative profit
is high, inferred motive will be negative, even for the firm
with a good reputation. A firm with a poor reputation will
not receive the same inferential leniency. That is, when a
firm has a poor reputation, inferred profit will not affect
inferred motive.
H3: When the pricing situation suggests a negative motive, the
firm's reputation will moderate the impact of inferred profit
on inferred motive. When the firm has a goodreputation, in-
ferredrelative profit will affectinferred motive such that no
increase in inferred profit will lead to a more favorable in-
ferred motive compared with increased inferred profit.
Whenthe firm has a poorreputation, inferred profitwill not
affect inferred motive.
In summary, this suggests that there will be an asymmet-
ric effect of reputation. A good reputation has goodwill
value that will cause consumers to take a more lenient view
of the firm's motives when the pricing situation suggests a
negative motive but profit is inferred to be no more than nor-
mal. In this case, the firm will benefit from a good reputa-
tion because consumers will give the firm the benefit of the
doubt when inferring motives for the price change. This
effect of good reputation on inferred motive will lead to per-
ceptions that the price increase is fair.
THE EFFECT OF PERCEIVED UNFAIRNESS
As noted previously, research demonstrates a negative
effect of perceptions of price unfairness on a variety of out-
comes of importance to the firm. Research also indicates
that though consumers are willing to take on some costs to
resist unfair prices, there is a limit to the costs that con-
sumers will bear before accepting a price that is perceived as
unfair (see Urbany, Madden, and Dickson 1989). Consumer
resistance to an unfair price demands that consumers give
up something of value. Naturally, there are limits to what
consumers are willing to sacrifice in any given situation.
However, overall it is expected that perceived price unfair-
ness will lead to some consumer resistance; further explo-
ration of the limits of this resistance is left to additional
research.
The primary purposes of the research presented here are
to examine inferred motive as an antecedent of perceptions
of unfairness and the influence of reputation on inferred
motive. In addition, this work follows prior research by
proposing that perceptions of price unfairness are likely to
Perceptions of Price Unfairness
affect consumers' willingness to conduct business with the
price-setting firm negatively. This resistance is expected to
go beyond the particular product affected by the price
increase, more generally influencing consumers' willing-
ness to purchase from the firm.
H4: Perceived price unfairness will affect consumer likelihood
of shopping at a firm such that the likelihood of shopping
will be lower whena firm is perceived to haveset an unfair
pricethan whenthe priceis perceived as fair.
To summarize, is it proposed that, in addition to inferred
relative profit, inferred motive for a price change influences
Figure 2
STUDY 1 SCENARIOS
Scenario J: More than Normal Profit. Negative Motive
This past winter, My Size Barbie was a very popular gift, so popular that
many stores sold out of the doll. One large retailer in Van Nuys sold out of
My Size Barbie at the beginning of December and was sold out for almost
three weeks. One week before Christmas, an employee discovered one My
Size Barbie in a storeroom. The managers of the store knew that many
customers would like to buy the doll. They decided to sell the doll by
auction and announced over the store's loudspeaker that they would sell the
doll to whichever customer offered to pay the highest price.
Fair: 20% Unfair: 70% Neither: 10%
Scenario 2: More than Normal Profit. Positive Motive
This past winter, My Size Barbie was a very popular gift, so popular that
many stores sold out of the doll. One large retailer in Van Nuys sold out of
My Size Barbie at the beginning of December and was sold out for almost
three weeks. One week before Christmas, an employee discovered one My
Size Barbie in a storeroom. The managers of the store knew that many
customers would like to buy the doll. They decided to sell the doll by
auction and announced over the store's loudspeaker that they would sell the
doll to whichever customer offered to pay the highest price. The profits
from the auction sale would go to help the company fund an on-site
employee childcare facility.
Fair: 65.5% Unfair: 27.5% Neither: 7%
Scenario 3: No More than Normal Profit. Negative Motive
This past winter, My Size Barbie was a very popular gift, so popular that
many stores sold out of the doll. One large retailer in Van Nuys sold out of
My Size Barbie at the beginning of December and was sold out for almost
three weeks. One week before Christmas, an employee discovered one My
Size Barbie in a storeroom. The managers of the store knew that many
customers would like to buy the doll. They decided to sell the doll by
auction and announced over the store's loudspeaker that they would sell the
doll to whichever customer offered to pay the highest price. After one
customer got very angry and complained, the managers said that profits
from the auction sale would go to Toys for Tots (a charitable foundation
that gives toys to poor children during the holidays).
Fair: 44.8% Unfair: 41.4% Neither: 13.8%
Scenario 4: No More than Normal Profit. Positive Motive
This past winter, My Size Barbie was a very popular gift, so popular that
many stores sold out of the doll. One large retailer in Van Nuys sold out of
My Size Barbie at the beginning of December and was sold out for almost
three weeks. One week before Christmas, an employee discovered one My
Size Barbie in a storeroom. The managers of the store knew that many
customers would like to buy the doll. They decided to sell the doll by
auction and announced over the store's loudspeaker that they would sell the
doll to whichever customer offered to pay the highest price. The profits
from the auction sale would go to Toys for Tots (a charitable foundation
that gives toys to poor children during the holidays).
Fair: 80% Unfair: 10% Neither: 10%
191
the perceived unfairness ofthe price (H) and H 2) . This leads
to the suggestion that the firm's prior reputation will influ-
ence inferred motive such that a firm with a good reputation
is given the benefit of the doubt in terms of an effect of
inferred profit on inferred motive, but a firm with a poor
reputation is not (H3) . Reputation thereby will influence per-
ceived price unfairness indirectly. Perceived unfairness is
expected to lower the likelihood that a consumer will
patronize the firm (H4) .
Two studies were conducted to test these hypotheses. In
Study 1, inferred relative profit and motive were varied to
enable tests of H) and H 2 . The data also were used to exam-
ine H4 • In Study 2, reputation and inferred relative profit
were manipulated in the context of a pricing situation that
suggested a negative motive. This enabled examination of
H 2, H 3 , and H4 • Descriptions of these studies follow.
STUDY 1
Study 1 used a 2 x 2 between-subject design, crossing
motive (negative, positive) and relative profit (more than
usual, no more than usual). Participants were fully
employed part-time MBA students. The average age of par-
ticipants was 33.4 years, and there were 78 men and 30
women.
Stimuli
The stimuli consisted of scenarios describing a retailer's
decision to increase a price. The experimental factors of
motive and relative profit were manipulated by including
different pieces of information in the basic scenario.
Previous research has found that auctions can be perceived
(I) to result in higher than normal profits and (2) as unfair
by everyday consumers (Holt 1995; Kahneman, Knetsch,
and Thaler 1986a, b). In addition, a pretest suggested that
consumers sometimes perceive an auction as taking advan-
tage of consumer demand. Thus, the basic scenario
described an auction of a popular child's toy. When no addi-
tional information was provided, this auction was expected
to create the negative motive (i.e., the firm is taking advan-
tage of consumers), higher profit (i.e., the retailer will have
higher net profitability by auctioning off the doll than by
selling it at the reference price) condition. Subjects were
expected to infer that the firm was motivated to take advan-
tage of high consumer demand to make more than normal
profit on the sale of the doll. This basic scenario was modi-
fied to change inferred motive from negative to positive, net
profit to approximately the same as normal, or both. The
scenarios are presented in Figure 2.
Inferred motive was manipulated by including informa-
tion that the firm would use the profit from the auction sale
to fund an on-site employee daycare center; this changed
inferred motive without affecting inferred profit.' Although
the scenario suggests a salient, positive motive-the firm
'This is only one of a variety of possible manipulations of inferred
motive. Although previous research has demonstrated that consumers
sometimes perceive auctions as unfair, it is my contention that this is
because they infer negative motive to take advantage. If consumers infer a
positive motive for an auction, they would perceive it as fair. For example,
information suggesting that the firm was using the auction as a way of allo-
cating a scarce good probably would be perceived as fair; this also would
be likely to be an effective manipulation of "additional profit, good
motive."
192
wants to use the money for a "good" thing-the firm itself
is still making more than normal profit from the auction
sale. In other words, the firm's choice to use the profit for
good affects inferred motive but does not affect that the firm
makes, and keeps, additional money.-
The negative motive, no increased profit condition was
created with information that the firm gives the profit from
the sale to a charity (and so does not itself profit from the
auction), but that the decision to donate the profit is made
only after a customer complains. Thus, the inference that t~e
motive was to take advantage is not attenuated by the deci-
sion to donate because that decision apparently was made
only in response to customer criticism.
Information that the firm's initial plan is to donate the
profit from the sale to the charity manipulated both pro~t
and motive. As described previously, the firm does not gam
increased profit because it gives the proceeds away. In addi-
tion, this suggests a positive motive, namely, to aid a charity.
Dependent Measures
The study used a between-subjects design; each partici-
pant read only one scenario. After reading through a sce-
nario, participants provided fairness evaluations on a scale
from 1 ("very fair") to 7 ("very unfair"). Ratings of 1 to 3
are described as "fair," ratings of 5 to 7 are described as
"unfair," and ratings of 4, the midpoint of the scale, are
described as "neither." The percentages of participants in
each category are shown in Figure 2. A small space was pro-
vided for thoughts and feelings about the pricing decision,
and then participants indicated on a seven-point scale how
the scenario affected the likelihood that they would shop at
the retailer if shopping for toys (1 ="a lot less likely to shop
at this store" and 7 = "a lot more likely to shop at this
store").
Manipulation Checks
Next, participants completed manipulation checks. First,
participants evaluated the store managers' motives on a two-
item scale. Two seven-point scales were anchored by "bad
intentions"l"good intentions," and "intended to take advan-
tage of customers"/"did not intend to take advantage of cus-
tomers" (r = .78, p < .0001). Next, participants indicated
(1) the store's net financial profit from the sale of the single
doll relative to the normal profit and (2) the price paid for
the doll relative to the normal price. The perceived profit
and price both were measured on seven-point scales labeled
"a lot less than normal" (1), "about the same" (4), and "a lot
more than normal" (7). Although the price paid was not
manipulated, measuring participants' perceptions of price
allowed for verification that the scenarios violated the refer-
ence price, as expected.
Covariates
Participants' ages, gender, number of children in family
(because the experimental product was a child's toy), and
involvement with charity were collected as possible covari-
ates. Analyses indicated that none of these factors had any
2As discussed in the "Results and Discussion" section, the participants'
responses to the question of how much profit the firm makes from the sale
supports the intended manipulation. Participants rated the firm as making
more than normal profit in this condition. Relative profit was rated as sig-
nificantly higher than in the two no additional profit conditions and the
same as in the base, higher profit condition. See Table I for the cell means.
JOURNAL OF MARKETING RESEARCH, MAY 1999
effects as covariates, and they were dropped from further
analysis.
RESULTS AND DISCUSSION
Manipulation Checks
The same 2 (motive) x 2 (relative profit) ANOVA model
was used to analyze all variables. First, manipulation check
measures were analyzed to verify that the experimental fac-
tors varied, as intended. Analysis of participants' ratings of
net financial profit revealed that inferred relative profit var-
ied by profit condition as intended (F(l,102) = 41.38, .p <
.001). Profit was manipulated successfully to be perceived
as higher than normal (mean =5.75) in the increased profit
conditions and approximately normal (mean = 3.75; note
that 4 is labeled as "about the same") in the no increased
profit conditions. No other effects were significant (see
Table 1 for individual cell means).
Analysis with the two-item scale of inferred motive as the
dependent variable found a significant main effect of moti~e
information (F(l,102) = 54.81, P ~ .?01), such t~~t the P~SI­
tive motive conditions resulted 10 inferred posiuve motive
(mean = 5.33) relative to the negative conditions (mean =
3.28), regardless of relative profit made. This analysis also
revealed a significant effect of the profit condition (F(l,102)
=4.13, p < .05) qualified by a significant interaction (F(l,102)
= 4.63, P < .05). Examination of the means reveals that these
results were due to the no increased profit, positive motive
cell. Not making any profit apparently makes the motive of
the retailer seem especially good; the participants were
strongly of the opinion that there was no motive to take
advantage in this condition.3 Whereas the inferred motive in
this cell (6.05) was significantly more positive than in the
increased profit, positive motive cell (mean = 4.83; F(l,102)
= 7.95, P < .01), there was no effect of profit when the
inferred motive was negative (mean(profit) = 3.3, mean(no
profit) = 3.3; F < 1). T?us, .though.th~re was some effect of
profit on inferred motive, It was limited to one cell and the
effects of the two factors on the dependent variables still can
be examined.
These two analyses revealed that the experimental factors
were manipulated successfully. In addition, analysis of the
price that participants believed the consumer paid f~r. the
doll indicated no significant differences across conditions
(F < 1). This verified that (1) the price was regarded as uni-
formly higher than normal, such that the reference price was
violated, and (2) the experimental factors did not influence
the price that the consumer was perceived to have paid for
the doll, eliminating level of price violation as a possible
confounding factor (see Table 1 for means).
Dependent Variables
As predicted, analysis of the perceived fairness of the
price increase revealed two significant main effects and no
interaction (see Figure 3).4 Both the inferred relative profit
made by the firm and the inferred motive of the firm
3Altematively, helping a charity may he a subjectively "better" motive
than building an employee daycare center.
41t is important to note that the two main effects of the experimental fac-
tors are not the same as the main effect plus interaction found on the
inferred motive manipulation check. Thus, the effects cannot be attributed
to just the inferred motive factor; both profit and motive are shown to have
separate effects.
Perceptions of Price Unfairness 193

Table 1
STUDY 1: MEANS (STANDARD DEVIATIONS) OF DEPENDENT MEASURES

Profit
Motives
More than No More
Negative Positive Normal than Normal
Inferred motives 3.28 (1.6) 5.33 (1.4) 4.06 (1.7) 4.40(2.0)
Inferred relative profit 4.91 (1.9) 4.75 (1.9) 5.75 (1.5) 3.75 (1.8)
Price 6.43 (.78) 6.33 (.97) 6.33 (.89) 6.45 (.84)
Perceived unfairness 4.48 (2.3) 2.98 (1.9) 4.39 (2.2) 3.08 (2.0)
Shopping intentions 2.76 (1.6) 3.74(1.2) 2.85 (1.4) 3.63 (1.6)

Negative Motives Positive Motives

More Profit No More Profit More Profit No More Profit
Inferred relative profit 5.86 (1.6) 4.00(1.9) 5.66 (1.4) 3.37 (1..6)
Price 6.41 (.73) 6.45 (.83) 6.24 (1.0) 6.45 (.89)
Inferred motive 3.29 (1.5) 3.26 (1.7) 4.83 (1.5) 6.05(1.0)
Perceived unfairness 5.23 (2.2) 3.69 (2.1) 3.52 (1.9) 2.20(1.5)
Shopping intentions • 2.37 (1.5) 3.17 (1.6) 3.35 (1.1) 4.30 ( 1.2)
Note: All ratings were onseven-point bipolar scales: 7 = more profit, higher price, more positive motives, greater perceived unfairness (less fair), andmore
positive shopping intentions.

Figure 3
STUDY 1: MEANS OF PERCEIVED UNFAIRNESS BY
EXPERIMENTAL CONDITION
6
-+-Morc Profits
.........NoMore Profits
Negative Positive
affected perceived fairness. As suggested by the principle of
dual entitlement and predicted in HI' the pricing action was
perceived as more unfair when the firm was inferred to
make increased profit from the violation of the reference
price (mean = 4.39) and more fair when the firm was not
making increased profit (mean = 3.08; F(I,lOZ) = 13.50, p <
.001). In support of Hz, the price was perceived as more
unfair when the firm was inferred to have a negative motive
(mean = 4.48) but more fair when inferences were that the
firm's motive was positive (mean = 2.98; F(I,lOZ) = 16.95, P
< .001).5 Both HI and Hz were supported.
Analysis of the shopping intentions measure revealed
main effects of relative profit and motive, with no signifi-
cant interaction between the two factors. Participants indi-
5The main effects of profit andinferred motive on perceived unfairness
also were found to be significant when examined with nonparametric tests
(profit: Cochran-Mantel-Haenszel statistic = 15.4, P < .001; inferred
motive: Cochran-Mantel-Haenszel statistic = 14.2, P < .001).
cated that they would be less likely to shop for toys at the
retailer when profit was higher than normal (mean = 2.85)
than when profit was normal (mean = 3.63; F(l,loz) = 10.81,
P < .001). Likewise, participants described themselves as
less likely to shop at the store when they had inferred nega-
tive motive to take advantage (mean =2.76) than when they
inferred a positive motive (mean = 3.74; F(l,lOZ) = 15.46, P
< .001).
This work suggests that relative profit and inferred
motive influence perceived fairness, which in turn influ-
ences shopping intentions. Thus, a mediation analysis was
conducted. As recommended by Baron and Kenny (1986), a
series of three regression equations was estimated to test the
mediation. First, the mediator, perceived unfairness, was
regressed on the independent variables, inferred relative
profit and inferred motive; this showed significant effects.
Second, the dependent variable, shopping intentions, was
regressed on the independent variables; this also showed
significant effects of inferred relative profit and inferred
motive. Third, the dependent variable of shopping intentions
was regressed on both the independent variables, inferred
relative profit and inferred motive, and on the mediator, per-
ceived unfairness (see Table 2 for regression coefficients).
The third equation demonstrated that when perceived
unfairness was included with the two experimental variables
in the regression analysis, perceived unfairness was highly
significant (~motive = .30, p > .15; ~profit = .21, P > .30; ~unfair
= -.46, p < .001), but the initially highly significant predic-
tive ability of the experimental variables was eliminated.
Thus, the perceived unfairness of the pricing decision medi-
ated the effects of inferred relative profit and inferred
motive on whether participants were likely to shop at the
store.
Discussion
Study I extends existing research by demonstrating that
the motive attributed to the firm has an influence on per-
ceived price fairness beyond that of the firm's violation of
reference profit. The data show that both the inferred rela-
194
Table 2
STUDY 1: MEDIATION ANALYSIS-MODEL ESTIMATES
Perceived Unfairness
Variable Coefficient t-value p Coefficient
Intercept 8.24 9.7 .0001 .42
Relative profit -1.44 -3.8 .001 .87
Inferred motive -1.62 -4.2 .0001 1.05
Perceived unfairness
tive profit and the inferred motive are related causally to the
perceived fairness of a price.
As discussed previously, one important implication of the
finding that inferred motive influences perceived fairness is
that factors that influence the motive consumers infer for a
firm thereby will affect the perceived fairness of a price set
by the firm. The firm's prior reputation is expected to be one
such factor. As encapsulated in H3, reputation is expected to
influence the extent to which inferred relative profit influ-
ences inferred motive. Thus, a second study was conducted
to examine H 3 and provide insight to the influence of the
firm's reputation on inferred motive.
STUDY 2
Methodology
Eighty-six students and staff at a major West Coast uni-
versity volunteered for a study on pricing; participation was
motivated by a $3.00 incentive. The participants, 41 women
and 45 men with an average age of 24.1 years, were
assigned randomly to the cells of a between-subject study.
Two levels of profit (more than normal, no more than nor-
mal) were crossed with two levels of reputation (good,
poor). In all cases, the pricing scenario suggested negative
motive.
Stimuli
Participants first read through two paragraphs that pre-
sented the firm as having either a good or a poor reputation
within the community. A pretest was conducted in which 25
participants were assigned randomly to read one of two
descriptions of "Store X," intended to manipulate perceived
reputation. Evaluations on a reliable five-item scale
(Cronbach's alpha = .95) showed a significant effect of the
reputation manipulation on perceived reputation (F(I, 14) =
83.4, p < .0001). The description of the firm presenting a
good reputation resulted in much more positive evaluations
of the store's reputation (mean = 5.75, where 7 indicates a
good reputation) than the poor reputation description (mean
= 2.06). The reputation descriptions were slightly modified,
and the revised descriptions were used in the main study
(see Figure 4).
Next, participants read either Scenario 1 or Scenario 3
from Study 1 (see Figure 2).6 As found in Study I, both
these scenarios suggested negative motives for the firm's
pricing decision. However, the two scenarios differed in
that, in one, the firm made additional profit and in the other
the firm did not make additional profit. Thus, the two sce-
narios allow for examination of whether a good reputation
6The name of the doll was changed to "Sing 'N Snore Ernie," which is
the name of a doll that was in short supply at the time of the study.
JOURNAL OF MARKETING RESEARCH, MAY 1999
Shopping Intentions Shopping Intentions
t-value p Coefficient t-value p
.7 .48 4.20 7.0 .0001
3.3 .001 .21 1.0 .32
3.9 .0001 .30 1.4 .16
-.46 -9.14 .0001
Figure 4
STUDY 2: REPUTATION CONDITIONS
Good Reputation
Store X is a large retailer that has been established for many years and is
highly regarded in the community. This retailer seems to treat both its
customers and its employees with respect. Employees feel that the store
tries to be equitable in its interactions and negotiations. Consumers state
that the store seems to have a philosophy of offering good service.
Store X participates in a variety of community activities and recently began
supporting both a receipt-exchange program, in which they give a portion
of saved receipts to buy computers for the local elementary school, and a
"day on the job" program for at-risk youths. This store seems to have a
good reputation with its customers, employees, and the community at large.
Poor Reputation
Store X is a large retailer that has been established for many years but is not
highly regarded in the community. This retailer does not seem to treat either
its customers or its employees with respect. Employees feel that the store
does not try to be equitable in its interactions and negotiations. Consumers
state that the store seems to have a philosophy of offering little service.
Store X does not typically participate in community activities and recently
declined to support both a receipt-exchange program, in which they would
give a portion of saved receipts to buy computers for the local elementary
school, and a "day on the job" program for at-risk youths. This store seems
to have a bad reputation with its customers, employees, and the community
at large.
attenuates negative inferences of motive when there is some
favorable information that the firm did not increase profit.
That is, when the firm has a good reputation and the infor-
mation suggests the possibility of negative intent to take
advantage but the firm does not profit, does a prior good
reputation limit inferences of negative intent, such that the
action is perceived as more fair?
Measures
After reading the reputation and pricing information, par-
ticipants evaluated the perceived fairness of the pricing
decision on two items. Perceived fairness was rated on the
same bipolar adjective scale anchored by 1 = "very fair" and
7 = "very unfair" that was used in Study 1 and also using a
statement of "this price is not fair" for which 1 = strongly
agree and 7 = strongly disagree. The second item was
reverse scored, and the two were averaged for a reliable
scale of perceived fairness (r = .84, p < .0001). After
responding to the questions of perceived fairness, partici-
pants indicated on seven-point bipolar scales how likely
they would be to shop at the described store if shopping for
toys (I = "a lot less likely" and 7 = "a lot more likely") and
whether they would bid on the doll if they were shopping at
Perceptions of Price Unfairness 195

the store at the time of the auction (1 = "definitely not" and
7 = "definitely would").
Participants then indicated their inferences about the
store's motive on two seven-point, bipolar items anchored
by "bad motives"/"good motives" and "antisocial"/"proso-
cial" (r = .64, p < .0001). Participants next completed seven-
point scales evaluating (1) the relative profit made by the
store from the sale and (2) the price the consumer paid for
the doll (both were answered on seven-point bipolar scales
anchored by "a lot less than normal"/"a lot more than nor-
mal"). These measures were followed by a five-item mea-
sure of reputation composed of three bipolar adjective scales
anchored by "bad"l"good," "negative"/"positive," and
"poor"l"excellent" and two statements on the store's reputa-
tion with 1 = "strongly agree" and 7 = "strongly disagree."
Items were reverse scored as appropriate, achieving a reli-
able scale of reputation (Cronbach's alpha = .95). These
measures were followed by individual difference measures
of gender, age, and number of children.
Results and Discussion
The dependent variables were first analyzed with a 2 (rel-
ative profit) x 2 (reputation) ANCOVA including gender,
number of children, and age. The covariates did not signifi-
cantly affect any of the analyses and thus were dropped from
analysis.
The basic 2 x 2 ANOVA model was used to analyze all
dependent variables. Means appear in Table 3. First, the
inferred relative profit made by the firm on the sale was ana-
lyzed to verify that inferred profit differed as intended. As
expected, profit information had a significant impact on par-
ticipants' profit ratings (F(I, 82) = 19.8, P < .0001). Partici-
pants believed that the firm made significantly more profit
in the additional profit condition (mean = 6.2) than in the no
additional profit condition (mean = 4.8). There were no
other significant effects. Thus, the experimental manipula-
tion of inferred relative profit was effective. Next, partici-
pants' perceptions of the firm's reputation were analyzed to
confirm that prior reputation was manipulated successfully.
Analysis of variance revealed a significant effect of the rep-
utation condition on the reliable (Cronbach's alpha = .95)
measure of the firm's reputation (F(I, 82) =98.2, P < .0001)
and no other significant effects. Participants perceived that
the firm had a good reputation (mean = 4.9) in the good rep-
utation condition relative to the poor reputation condition
(mean =2.1). Finally, the price the consumer who purchased
the doll was believed to have paid also was analyzed; in all
conditions, the price was perceived to be higher than normal
(mean =6.3), and there were no effects of the experimental
factors on price paid (F(3,82) < 1, n.s.). Thus, the manipula-
tions of inferred profit and reputation were successful, and
there were no unexpected effects on price.
Results of the analysis of the inferred motive measure are
depicted graphically in Figure 5. The analysis revealed a
significant main effect of the firm's reputation (F(I, 82) =
21.9, P < .001) and a significant effect of inferred profit (F(I,
82) = 4.9, P < .05). These main effects were qualified by a
significant interaction between reputation and inferred profit
(F(I, 82) = 10.7, P < .001). In support of H3, simple effects
analyses revealed that, whereas the inferred profit did not
affect the inferred motive when the firm had a poor reputa-
tion (F(I,41) < 1), the profit did influence the inferred motive
for a firm with a good reputation (F(l, 41) = 15.0, P < .001).
Participants inferred a much more positive, prosocial motive
when the firm with a good prior reputation did not profit
(mean =5.1) than when the firm did profit from the pricing
action (mean = 3.4).
Analysis of perceived price unfairness revealed the same
pattern of effects as did inferred motive (though, as
expected, the means were in the opposite direction). There
was a significant main effect of reputation (F(I,82) = 12.64,
P < .001), a significant main effect of inferred profit (F(I,
82) = 5.2, p < .05), and a significant interaction effect (F(I,
82) = 4.1, P < .05). Follow-up simple effects analyses
revealed that the main effects were qualified by the interac-
tion. The inferred relative profit did not significantly affect
perceived price unfairness when the store had a poor repu-
tation (F < 1) but modified perceived unfairness when the

Table 3
STUDY 2: MEANS (STANDARD DEVIATIONS) OF DEPENDENT MEASURES

Reputation Profit
Good Poor More Profit No More Profit
Inferred relative profit 5.69(1.4) 5.41 (1.7) 6.21 (1.00) 4.84 (1.7)
Price 6.12 (1.5) 6.41 (.90) 6.30 (1.2) 6.20 (1.3)
Inferred motive 4.22(1.7) 2.83 (1.4) 3.23 (1.4) 3.81 (1.9)
Perceived unfairness 3.85(2.2) 5.24 (1.8) 4.97 (1.9) 4.1 (2.2)
Shopping intentions 3.98(1.8) 2.16 (1.2) 2.81 (1.5) 3.32 (1.9)
Intention to bid 3.26(2.2) 2.35 (1.5) 2.74 (1.8) 2.86 (2.0)

Good Reputation Poor Reputation

More Profit No More Profit More Profit No More Profit
Relative profit 6.35 (.90) 4.89 (1.4) 6.00 (1.1) 4.91 (1.9)
Price 6.13( 1.5) 6.11(1.5) 6.47 (.70) 6.36 (1.1)
Inferred motive 3.43 (1.6) 5.13(1.3) 3.00 (1.1) 2.67 (1.5)
Perceived unfairness 4.67(1.9) 2.90 (2.0) 5.30 (1.7) 5.20(1.9)
Shopping intentions 3.35(1.7) 4.70 (1.6) 2.20 (1.0) 2.13 (1.4)
Intention to bid 2.96(2.0) 3.60 (2.3) 2.50 (1.4) 2.22 (1.5)
Note: All ratings were on seven-point bipolar scales: 7 = more profit, higher price, more positive motives, greater perceived unfairness (less fair), more pos-
itive shopping intentions, and greater probability of bidding on the doll.
196 JOURNAL OF MARKETING RESEARCH, MAY 1999

Figure 5 motive and perceived unfairness. There was a significant

STUDY 2: MEANS OF RATINGS OF INFERRED MOTIVE BY effect of reputation (F(l, 82) = 35.4, P < .001), a main effect
EXPERIMENTAL CONDITION of inferred profit (F(l, 82) =4.2, p < .05), and an interaction
effect (F(l, 82) = 5.2, P < .05). Simple effects analyses
revealed that the relatively low likelihood of shopping at the
6 store with a poor reputation was not influenced by the
inferred profit (F < 1), whereas participants were more

/-------.
c:
~
5
likely to shop at the store with a good reputation when the
store gave away the profit after the angry customer com-
S plained (mean = 4.7) than they were when the store was
::s 4
-+-0000 Reputation
inferred to keep the profit (mean = 3.4; F(l, 42) = 9.4, p <
Q ___Poor Reputation
~ .01). Examination of the contrasts revealed a significant
~
~ main effect of reputation in addition to the interaction effect.
3
~ Even when the store kept the profit from the sale, partici-
~ pants were more likely to shop at a store with a good repu-
2 tation (mean = 3.4) than at a store with a poor reputation
More Profit No More (mean =2.2).
Profit The same analyses were conducted with the probability
PROFTI that the participants would bid on the doll as the dependent
variable. The patterns of results for this measure were quite
different from the preceding variables. The only significant
store had a good reputation (F(l, 42) =9.3, p < .01). When the effect on probability of bidding for the doll was a main
store had a good reputation, the store not profiting from the effect of reputation. Participants were more likely to bid on
pricing action but instead giving the profit to a charity the doll when the store had a good reputation (mean = 3.3)
decreased the perceived price unfairness, such that the price than when the store had a poor reputation (mean = 2.4; F(l,
was perceived as significantly less unfair (mean =2.9) rela- 82) =5.2, P < .05). However, participants indicated that they
tive to when the firm profited from the price change (mean = were never very likely to make a bid; in every condition, the
4.7, where 7 =unfair). average likelihood of bidding on the doll was lower than the
The analyses of inferred motive and perceived unfairness midpoint of the scale (see Table 3 for cell means). The dif-
are consistent with the hypothesis that reputation influences ference in the patterns of results for the two different mea-
inferred motive, which then influences perceived price sures of purchase intentions is interesting and might provide
unfairness. This mediation was tested specifically by the insight to limitations of consumers' willingness to take on
method recommended by Baron and Kenny (1986) and costs to "punish" unfair firms. In the case in which the con-
described in Study 1. Three regression analyses were con- sumer already has absorbed transportation costs and the
ducted to explore whether the inferred motive mediated the costs of not buying the doll from that particular store are
effect of the reputation and profit conditions on perceived high because of the doll's rarity, consumers' intentions to
unfairness (see Table 4). The first two regression equations purchase are not affected by perceived unfairness, whereas
showed the impact of the experimental variables, reputation, intentions for future shopping behavior are.
relative profit, and the interaction on inferred motives and To test the extent to which the effects of the experimental
perceived unfairness. In a third analysis, perceived unfair- variables on shopping intentions were mediated by per-
ness was regressed on the experimental variables as well as ceived unfairness, a mediation analysis was conducted, fol-
on the inferred motive scale. All the effects of the experi- lowing the method suggested by Baron and Kenny (1986)
mental variables were diminished, whereas the effect of and described previously. The first two regression analyses
inferred motive was highly significant. This shows that replicated the results of the ANOVAs; these equations
inferred motive mediates the effects of the experimental showed significant effects of reputation and the interaction
variables on perceptions of price fairness, providing support of reputation and profit in predicting (1) perceived unfair-
for the overall conceptualization of this work. ness (~Rep =-2.30, t = -4.0, p < .00I; ~Rep x Profit = 1.67, t =
Analysis of participants' likelihood of shopping at the 2.0, P < .05) and (2) shopping intentions (~Rep = 2.57, t =
retailer followed the same pattern revealed for inferred 5.8, p < .0001; ~Rep x Profit = -1.42, t =-2.3, P < .05). The

Table 4
STUDY 2: ANALYSIS OF INFERRED MOTIVE AS MEDIATOR OF EXPERIMENTAL FACTORS ON PERCEIVED UNFAIRNESS-MODEL
ESTIMATES

Inferred Motive Perceived Unfairness Perceived Unfairness

Variable Coefficient t-value p Coefficient t-value p Coefficient t-value p
Intercept 2.75 9.1 .0001 5.20 13.1 .0001 7.83 20.7 .0001
Reputation 2.28 5.1 .0001 -2.30 -4.0 .0001 .12 .26 .80
Relative profit .22 .5 .62 .10 .2 .86 .43 l.l .28
Reputation x profit -1.82 -2.9 .01 1.67 2.03 .05 -.32 -.54 .59
Inferred motive -.99 -9.9 .0001
Perceptions of Price Unfairness
third equation, in which likelihood of shopping was
regressed on perceived unfairness in addition to the experi-
mental factors, showed that though perceived unfairness
was highly significant (p = -.56, t = -9.72, p < .0001), the
interaction of reputation and profit was no longer significant
(p = -.49, t = -1.1, p < .27). These results indicate that the
interaction effect was mediated by inferred motive. The rep-
utation effect remained highly significant in this model (P =
1.29, t = 3.91, p < .00(1), though the coefficient was
smaller. This suggests that, not surprisingly, there was a
direct effect of reputation on shopping intentions beyond the
effect mediated by perceived unfairness.
This study demonstrates that reputation and inferred rela-
tive profit influence inferences of motive, thereby influenc-
ing perceived price fairness and intentions to patronize the
retailer. The significant interaction between reputation and
relative profit is important in that it bolsters the contention
of this research that reputation moderates the impact of
inferred relative profit on inferred motive. When a firm has
a good reputation, a consumer is likely to give the firm the
benefit of the doubt. Even when the pricing scenario sug-
gests negative motive, if the firm does not appear to make
additional profit, consumers infer a more positive motive. A
firm with a poor reputation, however, does not receive this
benefit; in this case, a consumer is just as likely to infer neg-
ative motive when relative profit appears higher than when
the firm does not increase profit from the pricing action.
These results show that inferred motive is a critical factor in
perceptions of price fairness.
SUMMARY AND CONCLUSIONS
Drawing on psychological and economic theories, this
research suggests that the inferred motive of the firm in set-
ting a price is a factor in consumers' perceptions of price
unfairness. Two studies provide empirical support for the
proposed concept that when a consumer infers that the firm
has a negative motive to take advantage of consumers, a
pricing decision is perceived as unfair, compared with when
the consumer does not attribute such a motive to the firm.
This research shows that inferred motive for the price
increase is a factor in perceived price fairness, in addition to
the relative profit presumed to be made by the firm as a
result of the increase. This research bolsters the argument
for the importance of the influence of inferred motive on
perceived price fairness by demonstrating that firm reputa-
tion affects perceptions of price fairness by moderating
inferences of motive. Finally, this also provides empirical
support for the finding that consumers are less likely to con-
duct business with a firm that is perceived to have estab-
lished unfair prices, by demonstrating that consumers' atti-
tudes and behavioral intentions toward the firm are lower
when the firm has set a price that is perceived as unfair.
Taken together, the results of these two studies provide
strong evidence for the overall model presented in Figure 1.
Study I manipulated the inferred motive and relative
profit attributed to a firm in pricing a doll in the preholiday
season. The results support the conceptual development,
showing that inferred motive to take advantage of con-
sumers contributed significantly to perceptions of unfair-
ness. This study extended previous work by showing that
both inferred motive and inferred relative profit signifi-
cantly affect perceptions of unfairness. This adds to the
197
insight provided by the principle of dual entitlement and
demonstrates that motive attributed to the firm modifies the
perceived unfairness of the price, regardless of whether the
pricing decision leads to increased profit for the firm.
Study 2 examined the effect of reputation on inferred
motive. As predicted, reputation interacted with inferred rel-
ative profit to influence inferred motive. Inferred motive
was not affected by inferred relative profit when the firm
had a poor reputation but was more positive when the firm
did not profit and the firm had a good reputation, which sug-
gests an important way in which a good reputation can be
beneficial to a firm. Consumers are more willing to give a
firm with a good prior reputation the benefit of the doubt
when making inferences about underlying motive.
Limitations and Further Research
As always, the use of experiments suggests some limita-
tions to the research. Although experiments enabled close,
careful examination of the factors of interest, they also
involved some artificiality. For example, the information on
firm reputation was provided to participants in a short, writ-
ten format. In reality, a firm develops a reputation over time
through a variety of actions. Although the reputation infor-
mation included several different types of information that
are part of overall reputation (Herbig and Milewicz 1993),
this short paragraph is likely to provide less information
than consumers often have about firms, and thus, the effects
of reputation may be underrepresented by this manipulation.
In contrast, participants read the reputation information
immediately prior to reading about the price increase, which
may have made the firm's reputation more salient than
usual. Finally, the information on reputation may have been
more consistent than is common. For example, in the case of
the poor reputation, all information was fairly negative,
whereas in many real world cases, there is a combination of
negative, neutral, and positive information about a firm.
Thus, care must be taken in generalizing these results to
everyday situations.
Another shortcoming of this work may be that the situa-
tion in both studies involved an auction of an extremely lim-
ited product. The desirable holiday doll scenarios are such
that there is significantly greater demand for than supply of
the product at the posted price, and consumers face a tight
time constraint. Although there is always scarcity involved
with products, it is not always the case that there is a tem-
porary shortage of a product that is highlighted to the same
extent as in these scenarios. It would be useful to explore the
extent to which consumers make inferences about firms'
motives in situations in which a firm increases a price for a
product that is not in immediate short supply. One possibil-
ity is that consumers are less likely to take motive into con-
sideration in such situations because they may assume that
the firm would not have raised the price unless the increase
was supported by market forces.
Similarly, additional research should explore the extent to
which the results found here extend beyond auctions. One
interesting question is how consumers would respond if a
firm increased overall prices to support a charity. This
research suggests that, because of the positive motive, con-
sumers would perceive this as fair. However, it is possible
that, even if the price decision were perceived as fair, some
consumers would choose to conduct business elsewhere. It
198
would be useful to gain further understanding of consumers'
inferences about pricing and other market actions, as well as
factors that moderate the relation between fairness and atti-
tudes and intentions.
In Study 1, inferred motive was unexpectedly affected by
inferred profit. Although the effect was limited to one con-
dition, this effect indicates that the construct of inferred
motive and the relation between inferred motive and profit
are in need of further development. The results of both
Study I and Study 2 suggest that profit can affect inferred
motive in some conditions; in both studies, inferred profit
appeared to be used sometimes by participants to provide
insight to the firm's underlying motive. Further research
should explore the antecedents of inferred motive and the
role of inferred profit in greater detail.
Finally, the studies presented here examine only one type
of product and one type of pricing situation. It is probable
that several unexplored variables likewise affect perceived
price fairness. For example, though the doll in the scenarios
is a nonessential product, it is one that consumers from a
variety of walks of life purchase, and the situation is one
with which many consumers can sympathize. It would be
interesting to explore whether the process by which percep-
tions of unfairness arise is different when the product under
consideration is a "true" luxury good, such as a yacht or an
expensive automobile. Another possibility is that there are
individual difference variables that affect perceptions of
fairness and/or motive. Some consumers may believe that
fairness is not applicable to auctions in particular, or the
marketplace in general, whereas others may believe that
fairness is relevant and important and, therefore, be more
likely to consider fairness and motive.
Conclusions
Both the studies previously discussed show that what
consumers learn about firms and what firms say about their
motives influence perceptions of unfairness. These findings
thus have important implications for the ways in which
firms manage their marketing communications, as well as
their prices. These results indicate that marketing communi-
cations can be used to manage consumers' inferences of
motive and, thus, their perceptions of fairness or unfairness,
particularly by a reputable firm. For example, firms should
consider using marketing communications, such as adver-
tisements or point-of-purchase materials, to provide justifi-
cations for price increases. Pricing decisions should be
made with consideration given to the need to communicate
the price and the reasons behind it. This research points to
the wisdom of integrating pricing and communications
decisions.
The notion that people look behind the price to the firm's
motive fits well with a current stream of research in con-
sumer behavior. Recent work suggests that a consumer's
response to marketing can be influenced by inferences about
the marketer's motive for taking a particular action (Camp-
bell 1995; Friestad and Wright 1994; Kirmani 1990; Kir-
mani and Wright 1989). The finding that consumers respond
to inferred motives in evaluating fairness provides another
example that consumers sometimes construe the reasons for
a marketer's actions and that these interpretations can influ-
ence consumers' responses to marketplace behavior.
The research presented here may provide insight to per-
ceptions of unfairness for marketplace actions other than
JOURNAL OF MARKETING RESEARCH, MAY 1999
pricing. A benefit of going beyond the principle of dual enti-
tlement and identifying inferred motive as a component of
perceived fairness is that inferred motive may influence
consumers' perceptions of fairness for marketplace actions
that are not linked clearly to reference profit. For example,
imagine that a consumer sees an advertisement for a piece of
stereo equipment at a good price. However, when she visits
the advertising retailer, she is told that the store does not
have that equipment after all, but that they have a higher
priced piece available. If the consumer infers that the store
management ran the advertisement with the negative motive
of taking advantage of consumers by getting them into the
store under false pretenses (i.e., "bait and switch"), she is
likely to perceive the advertisement as unfair. However, if
the consumer infers that the store management ran the
advertisement because they believed that they were going to
get a large shipment of the stereo equipment but then did
not, she may be more likely to perceive the same advertise-
ment as fair. It remains for additional research to develop
further how inferred motive affects perceived unfairness for
nonprice marketplace actions.
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