Perceived Exploitation in Quality Discrimination

The proliferation of software and firmware-based technologies has made it easier than ever for firms to modify existing products and sell these modified products at different prices. One such production method—downward quality discrimination—involves a firm disabling certain features of a product that they produce and selling that product with disabled features as a cheaper, standalone product. For example, the (less expensive) GoPro Hero 2018 consists of the same hardware as the (more expensive) GoPro Hero 5, but includes firmware that limits the quality of the camera. Seven experiments demonstrate that consumers find firms’ downward quality discrimination less acceptable than alternative production processes. Experiments 1-2 establish this effect, while also ruling out artifactual and competing theoretical explanations. Experiments 3a-3c provide complementary and convergent evidence—via mediation and moderation—that this effect is driven by the perception that firms’ downward quality discrimination represents an attempt to exploit consumers. Two final experiments offer practical insights for marketing managers: How consumers’ disapproval of downward quality discrimination can lead to (1) decreased willingness to pay in a real, incentive-compatible online market (Experiment 4), and (2) negative word-of-mouth (WOM) and public evaluations of a firm (Experiment 5).