Fairness

What is a fair price? That is a complicated question, and the answer depends on the definition of fairness that you apply. Psychologists have identified three types of fairness:  

• Outcome‐based: The focus is on end states that ensure that everyone achieves the same result. Google’s pay-per-click pricing basis is an example.
• Needs‐based: This calls for treating people differently, based on their individual needs. Unequal outcomes may be fair if they align with those needs. That is the rationale behind college financial aid.
• Process‐based: This focuses on how an end state is achieved. Unequal outcomes may be perceived as fair if the process behind them is perceived to be fair.

Each of these perspectives will play a role as we attempt to define a fair price, and as we demonstrate that perceptions of pricing fairness are ultimately linked to how value is created and shared between buyers and sellers.