Signaling cost to distributive fairness sensitive customers with price guarantee window

Abstract

This study investigates the influence of consumers' distributive fairness(DF) perceptions on a firm's optimal price guarantee window (PGW) decisions and cost disclosure strategies. The intertemporal signaling game model is employed to analyze two disclosure strategies, namely Proactive Disclosure and Retained Information. We show that a high-cost firm has an incentive to mimic the PGW decisions of a low-cost firm to be perceived as low-cost by consumers, and vice versa, creating a bidirectional imitation phenomenon. Secondly, when consumers have weak perceptions of DF, the disclosure of cost information reduces the PGW of the low-cost firm, challenging the traditional view that transparency always requires a low-cost firm to bear more service expenses. Thirdly, in a pooling equilibrium, different levels of consumers' distributive fairness perceptions lead to cost-information disclosure having the opposite effect on the demand of the high-type firm in the first period. Finally, when consumers' DF perceptions are weak, disclosing product cost information benefits the low-cost firm over the high-cost firm, and vice versa, indicating that the strategic value of cost disclosure depends on the interplay between cost state and consumer perceptions. Our findings offer valuable insights for managers, emphasizing the importance of aligning price service and cost transparency strategies with consumer DF perceptions.