Equity Versus Utility: The Moderating Effect of Acquaintance

Abstract

Utility theory and equity theory make contradictory predictions about the effects of declining costs on consumer satisfaction. In a standard economic analysis, satisfaction increases as costs fall but in an equity theoretical analysis, satisfaction decreases as costs fall when falling prices mean the consumer receives more than she gives up in exchange for a benefit. This study demonstrates that the claims of both these widely accepted theories may be valid if the effects of cost on satisfaction are moderated by degree of acquaintance with the exchange partner. Where personal acquaintance is high, the effects predicted by equity theory predominate. Where acquaintance is low, the effects predicted by utility theory predominate. Secular changes in marketing philosophy (the shift to a service dominant logic in marketing) and the growth of technologies that facilitate mass personalization (the Internet, databases, social networking) make degree of perceived acquaintance an important marketing variable.