In what condition is a price increase perceived as fair? an empirical investigation in the cable car industry

This paper investigates the concept of customers' perceived price fairness in the context of different price increase conditions. Several tourism service industries seem reluctant to systematically vary or occasionally rise prices, mostly because of potential negative consumer responses. Previous studies in behavioral pricing confirm that a price increase may be perceived as highly unfair and, with this, may lead to negative consequences for the firm. However, there is some evidence that not all price increase events are perceived equally and that consumers' fairness perception depends on the situational conditions of the respective price event. Drawing on the principle of dual entitlement and attribution theory, the results of a standardized survey with 1530 cable car customers in Switzerland reveal that cost-based reasons seem to legitimate a price increase, rather than excess demand conditions. Still, within cost conditions, an increase in internally controllable costs is perceived as a less fair reason for raising prices as opposed to an exogenously caused and uncontrollable cost increase. Interestingly, increasing prices without any communicated reason is perceived as the most unfair condition, indicating the crucial role of price communication.