Explorations in price (un)fairness

Abstract

A series of studies demonstrates that consumers are inclined to believe that the selling price of a good or service is substantially higher than its fair price. Consumers appear sensitive to several reference points—including past prices, competitive prices, and cost of goods sold—but underestimate the effects of inflation, over-attribute price differences to profit, and fail to take into account the full range of vendor costs. Potential corrective interventions—such as providing historical price information, explaining price differences, and cueing costs—were only modestly effective. These results are considered in the context of a 4-dimensional transaction space that illustrates sources of perceived unfairness for both individual and multiple transactions. 4 Fine restaurants gouge consumers, as evidenced by wine prices that are multiples of the going retail rate. Music on the Internet should be freely shared because the recording industry is rapacious in its pricing. Gasoline prices are exorbitant because they are determined more by industry collusion than market forces. Pharmaceutical prices should be regulated due to the obscenely high profits made on prescription drugs and the relatively low prices paid in other countries for the same products. Such beliefs—whether accurate or not—hold great consequence

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