Most articles in this series report a finding that turned out weaker than advertised. This one reports a forty-year-old result that has been confirmed repeatedly, has real field evidence behind it, and carries a specific practical rule. It also reports the one study we found that seriously undercuts its commercial importance.
Key Takeaway
The abstract: "In customer or labor markets, it is acceptable for a firm to raise prices (or cut wages) when profits are threatened, and to maintain prices when costs diminish. It is unfair to exploit shifts in demand by raising prices or cutting wages."[1] A price rise after a snowstorm was called unfair by 82 percent of 107 respondents; an identical rise caused by a wholesale cost increase was called acceptable by 79 percent of 101[2].
The Verdict, Stated First
Five claims, in descending order of confidence.
One. The finding is one of the better-supported results in this series. Confirmed by surveys in Switzerland, Germany, Russia, the United States and the Netherlands, and supported by field evidence from an industry where firms visibly decline to raise prices when demand is higher.
Two. The rule is specific and usable. Cost increases may be passed on; demand increases may not. That is a sentence a business owner can apply on Monday.
Three. One study found fairness perceptions did not predict behaviour. Respondents who called a fee unfair often would not switch, and some who called it fair would. That is the most important caveat in this article and it is rarely mentioned.
Four. There are two ways to pass on a cost and only one was tested. The famous scenario passed thirty cents of cost through as thirty cents of price, holding margin dollars flat. Preserving the margin percentage instead would have raised margin dollars, and we found no test of that version.
Five. The commercial cost of obeying the rule is smaller than the survey numbers suggest. On our own arithmetic, a firm on a 30 percent margin can lose a quarter of its unit volume and a 10 percent price rise still pays.
Our Grades For These Claims
Applying the scheme from the first article in this series.
Grade A for the core asymmetry, from an abstract obtained verbatim from four independent sources and specific response percentages from a citing academic paper.
Grade A for the confirmations, which span five countries and multiple decades, though we obtained none of those studies directly.
Grade B for the field evidence, from one 2016 study's abstract in one industry in one country.
Grade B for the perception-behaviour gap, from one study's abstract which describes itself as "a small study."
Grade A for our own arithmetic, which is standard margin mathematics.
Our position: the perceptual finding is solid and the behavioural consequence is much less established, which is a distinction almost every business summary of this work collapses.
A Note On Method
Everything here is verified to August 2026.
We obtained the 1986 paper's abstract verbatim from four independent sources, including two hosted university course copies of the paper itself[1][3]. We did not obtain the body of the paper, and every survey figure below reaches us through papers citing it.
The response percentages and the verbatim wording of two survey questions come from an academic working paper on pricing under fairness concerns[2], which is also our source for four later confirming studies.
We did not obtain any of the confirming studies, nor the companion 1986 paper in the Journal of Business.
The challenge study and the field study reach us as abstracts only[4][5].
All arithmetic is ours and uses invented figures throughout.
This article discusses research on pricing perceptions. It is not pricing, marketing or legal advice, and price gouging is regulated in some jurisdictions in ways this article does not address.
The 1986 Paper
The source.
Kahneman, D., Knetsch, J. L., and Thaler, R. (1986), Fairness as a Constraint on Profit Seeking: Entitlements in the Market, The American Economic Review, 76(4), 728–741, September, JSTOR 1806070[1][6].
There is a companion: Kahneman, D., Knetsch, J. L., and Thaler, R. (1986), Fairness and the Assumptions of Economics, Journal of Business, 59(4), S285–S300[6]. We did not obtain it.
Three observations, ours.
The method is telephone surveys of the general public, which is unusual for a paper in a top economics journal and is the point. The authors were not asking economists what is fair; they were asking customers.
The author list overlaps heavily with the endowment effect literature the twenty-third article in this series examined, and Knetsch appears in both, four years before the paper that made his name in the other tradition.
And the framing is aggressive in a way the title conceals. Fairness as a constraint on profit seeking asserts that firms do not maximise, which is a claim about firms rather than about consumers.
Four Sentences
The abstract in full, because it contains the entire finding.
"Community standards of fairness for the setting of prices and wages were elicited by telephone surveys. In customer or labor markets, it is acceptable for a firm to raise prices (or cut wages) when profits are threatened, and to maintain prices when costs diminish. It is unfair to exploit shifts in demand by raising prices or cutting wages. Several market anomalies are explained by assuming that these standards of fairness influence the behavior of firms."[1]
Four observations, ours.
The second sentence contains a clause most summaries drop: "and to maintain prices when costs diminish." Customers apparently do not require you to pass on savings, which is a considerable asymmetry in a firm's favour.
The third sentence is the constraint, and its object is shifts in demand, not high prices. A high price is not unfair; a price raised because demand rose is.
The fourth sentence makes the claim commercial. These standards influence the behavior of firms, meaning firms are said to actually price differently because of them.
And note what the abstract does not say. It does not claim customers punish unfair pricing, only that the standards exist and that firms respond to them. The gap between those two is where this article's main caveat lives.
The Snow Shovel
The famous question, verbatim.
"A hardware store has been selling snow shovels for $15. The morning after a large snowstorm, the store raises the price to $20."[2]
The response scale offered was "(1) Very Unfair, (2) Unfair, (3) Acceptable, (4) Completely Fair."[7]
The result: "Among 107 respondents, only 18% regard this pricing as acceptable, whereas 82% regard it as unfair."[2]
Four observations, ours.
The increase is 33 percent, from fifteen dollars to twenty. That is large but not extreme, and it is the kind of adjustment a real business might consider.
Nothing about the store's costs changed. The shovels were bought at the old price. The only change is that people now want them.
That is exactly the situation standard economics says a price should respond to. Demand rose, so the price should rise, and 82 percent of people called that unfair.
And the sample is 107 respondents, which is modest. The finding's strength comes from the replications rather than from this number.
The Lettuce
The mirror question, which is the half nobody quotes.
"Suppose that, due to a transportation mixup, there is a local shortage of lettuce and the wholesale price has increased. A local grocer has bought the usual quantity of lettuce at a price that is 30 cents per head higher than normal. The grocer raises the price of lettuce to customers by 30 cents per head."[2]
The result: "Among 101 respondents, 79% regard the pricing as acceptable, and only 21% find it unfair."[2]
Four observations, ours.
The two results are near mirror images: 82 percent unfair against 79 percent acceptable. The same population, judging price increases, splits almost exactly opposite ways depending on the cause.
Note that this scenario also involves a shortage, so scarcity alone is not what makes the shovel case unfair. Both cases have scarcity; only one has a cost increase.
The customer cannot verify the grocer's wholesale cost. The judgment turns on a stated reason rather than an audited one, which is commercially important and we return to it.
And the pass-through is exactly thirty cents on thirty cents, which is a specific choice by the researchers with consequences we take up below.
Dual Entitlement
The principle, as later literature names it.
A summary describes it: the authors "found that there are norms of fairness linked with reference transactions, like a reference profit for sellers and a reference price for buyers. Their 'Dual Entitlement' principle declares that it is perceived as unfair to exploit increased market power (like charging a higher price for snow shovels after a blizzard), while an adjustment to increased costs is considered as fair."[8] This is an academic association's blog, not a peer-reviewed source, flagged here and at every use.
A second description: the 1986 work "found that price increases involving consumer goods, wages, and rents were more likely to be found fair when the higher price was necessary to preserve a reference profit (and less likely to be fair when it took advantage of increased demand)."[5]
Four observations, ours.
The word dual matters. Two parties hold entitlements simultaneously: the seller to a reference profit, the buyer to a reference price. Neither may be improved at the other's expense.
The reference is historical, being whatever the transaction looked like before. That means the same price can be fair or unfair depending on what came before it, which is why a new entrant can charge what an incumbent cannot.
It also means the reference drifts. A price held for three years becomes the entitlement, and a price adjusted every year does not accumulate the same claim.
And the framework is reference-dependent, which places it in the same family as the loss aversion and probability weighting literatures the fortieth and sixty-first articles covered. Same intellectual machinery, applied to a market rather than a gamble.
The Cardinal Rule
The authors' own summary of what underlies all of it, quoted in a secondary source.
"The cardinal rule of fairness is surely that one person should not achieve a gain by simply imposing an equivalent loss on another."[9] This is a personal blog, flagged here and at every use, and we could not verify the sentence against the paper.
Three observations, ours.
The operative word is "simply." A gain accompanied by something, a better product, a cost absorbed, a service added, is not the case being described. A pure transfer is.
That distinguishes the two scenarios exactly. The grocer's thirty cents offsets a loss already suffered; the hardware store's five dollars is a pure transfer from customer to store.
And it explains why declining to pass on a cost saving is acceptable, per the abstract. Keeping a windfall is not imposing a loss on anyone; the customer is no worse off than before.
Two Ways To Pass On A Cost
A distinction the survey scenario contains and does not name, and which we think is the most commercially useful thing in this article. Our own arithmetic, invented figures.
Take a product priced at $100 with a cost of $60, so a margin of $40 or 40 percent. Costs rise. There are two defensible responses.
Dollar pass-through adds the cost increase to the price. Margin dollars stay flat, margin percentage falls.
Percentage pass-through preserves the margin percentage. Margin dollars rise.
At a 10 percent cost rise: dollar pass-through gives $106.00, margin $40.00 at 37.7 percent. Percentage pass-through gives $110.00, margin $44.00 at 40.0 percent.
At 30 percent: $118.00 with margin $40.00 at 33.9 percent, against $130.00 with margin $52.00 at 40.0 percent. A gap of $12.00 on the same cost event.
At 50 percent: $130.00 against $150.00, with margin dollars of $40.00 against $60.00.
Which One Was Actually Tested
The point of the previous section. Ours.
Four observations.
The lettuce question passed thirty cents through as thirty cents. That is dollar pass-through, and 79 percent called it acceptable.
We found no test of percentage pass-through in anything we obtained. The scenario that was approved is the one that holds the grocer's margin dollars flat and lets the percentage fall.
That matters because percentage pass-through increases the seller's margin dollars during a cost shock. On our own figures a 30 percent cost rise handled that way raises margin dollars by 30 percent, which under dual entitlement looks like improving the reference profit rather than defending it.
So the honest position is a gap rather than a finding. The survey evidence supports dollar pass-through and is silent on the percentage version, and most firms do the second without noticing it is a different act.
What A Price Rise Can Afford To Lose
The other side of the ledger, because a fairness constraint only binds if breaking it costs something. Our own arithmetic, standard break-even margin mathematics, invented figures.
If a price rise triggers a customer reaction, how much unit volume can you lose before the increase stops paying?
At a 20 percent margin: a 5 percent rise breaks even at 20.0 percent volume loss; a 10 percent rise at 33.3 percent; a 20 percent rise at 50.0 percent.
At 30 percent margin: 14.3, 25.0 and 40.0 percent respectively.
At 40 percent: 11.1, 20.0 and 33.3 percent.
At 60 percent: 7.7, 14.3 and 25.0 percent.
Three observations.
Read the 30 percent margin row. A ten percent price rise still pays if you lose fewer than a quarter of your units. That is a large cushion.
The pattern is that lower margins tolerate more volume loss, which is counterintuitive and follows directly from the arithmetic: when the existing margin is thin, the added margin from a price rise is proportionally larger.
And this is why the survey percentages overstate the commercial constraint. Eighty-two percent calling something unfair is not eighty-two percent walking away, and the next sections are about that distinction.
The Confirmations
Where the finding has been reproduced, from one academic paper's account of the literature.
It records: "Subsequent studies confirm and refine Kahneman, Knetsch, and Thaler's results. For example, in a survey of 1,750 households in Switzerland and Germany, Frey and Pommerehne (1993) confirm that customers dislike price increases that involve increased markups; so too do Shiller, Boycko, and Korobov (1991) in a comparative survey of 391 respondents in Russia and 361 in the United States."[2]
And on the cost side: "In a survey of 307 Dutch individuals, Gielissen, Dutilh, and Graafland (2008, Table 2) also find that price increases following cost increases are fair."[2]
We obtained none of these studies and report this characterisation.
Four observations, ours.
The combined samples are substantial. 1,750 households, plus 752 respondents across two countries, plus 307 more, which is an order of magnitude beyond the original 107.
The geographic spread is the more impressive part. Switzerland, Germany, Russia, the United States and the Netherlands, which addresses the obvious objection that this is a North American norm.
The Russian comparison in 1991 is the most interesting of them, being conducted in a country then leaving a planned economy, and we would very much like to know what it found in detail and do not.
And note that the confirmations are of the perception, in every case. None of them is described as testing whether anyone acted on it.
Is It Just Hardship?
The obvious alternative explanation, tested, and the answer is instructive.
The same source records: "The snow-shovel evidence leaves open the possibility that people find the price increase unfair simply because it occurs during a period of hardship. To address this question, Maxwell (1995) asks 72 students at a Florida university about price increases following an ordinary increase in demand versus those following a hardship-driven increase in demand. While more find price increases in the hardship environment unfair (86% versus 69%), a substantial majority in each case perceive the price increase as unfair."[2]
We did not obtain this study and report the characterisation.
Four observations, ours.
The test is well designed and the result is genuinely informative. Hardship raises the unfairness judgment from 69 to 86 percent, so it amplifies. But 69 percent is already a substantial majority, so it is not the cause.
That matters commercially because most demand increases are not hardships. A busy season, a viral mention, a competitor closing. The finding says the constraint applies to those too.
The sample is 72 students at one university, which is the weakest sample cited in this article and we grade it accordingly.
And the seventeen point gap is itself useful. Raising prices during a genuine hardship is meaningfully worse, which is the situation price gouging statutes generally address and which this article does not attempt to cover.
The Challenge
The study that undercuts the commercial reading, and it is the most important section here.
All's not fair in pricing: An initial look at the dual entitlement principle, Marketing Letters[4].
Its abstract: "A new theory in economics (Kahneman, Knetsch, and Thaler, 1986a, b) contends that consumer judgments of seller fairness can explain why sellers in many industries do not raise prices to ration off excess demand. In a small study focusing on automated teller machines (ATM) fees, we obtain empirical support for KKT's prediction that unjustified price increases are perceived as unfair, while cost justification 'legitimates' a price increase in consumers' eyes."[4]
Then the finding that matters: "We also find, however, that fairness perceptions are not significantly related to behavioral intentions (as the theory would suggest). Many respondents felt the fee was unfair but would not switch banks because of switching costs, while others felt the fee was fair but would switch banks because of the cumulative cost."[4]
Three observations, ours.
The study replicates the perception and breaks the link to action. Both halves are in the same abstract, which makes it a confirmation and a challenge simultaneously.
The authors describe it themselves as "a small study," and we did not obtain its sample size, so we grade it B and would not build a pricing strategy on it alone.
And the two failure modes given are the interesting part. Unfair but staying, because switching costs. Fair but leaving, because the cumulative cost. Those are ordinary economic reasons operating independently of the fairness judgment.
Saying And Doing
What that gap means, because it changes how the whole literature should be used. Ours.
Four observations.
Every survey in this article measures what people say about a hypothetical. That is a legitimate measurement of a norm and it is not a measurement of behaviour.
This series has been here before. The fifty-sixth article found a moral licensing literature where the founding paradigm reversed on replication; the sixty-third found a labour supply finding that survived until better behavioural data arrived. Stated judgments and observed conduct come apart routinely.
The switching cost point is the one to hold. A customer who finds your price increase unfair and has nowhere convenient to go will stay and resent it, which is a real cost that does not appear in this quarter's revenue.
And the honest formulation of the whole finding is therefore narrower than its reputation. Customers hold a clear and cross-culturally consistent norm about pricing, and how much they act on it is not established by this literature.
When Cost Justification Fails
An important qualification, because cost justification is not a licence.
A citing paper records: "when competitors' prices stay the same or when the cost increase is directly attributable to the seller's actions, even cost-justified price increases are seen as less fair."[10]
We did not obtain the study this describes and report the sentence.
Four observations, ours.
Two separate conditions are named and both are common. Competitors not moving is the ordinary situation when your cost increase is specific to you.
A cost increase attributable to your own actions is anything you chose: a new system, a move, a supplier you selected. Those are costs, and customers apparently do not treat them as exogenous.
Which sharpens the rule considerably. The defensible increase is one caused by something outside your control that is also visibly affecting your competitors. That is a much narrower category than "our costs went up."
And it explains why industry-wide cost shocks are passed through easily and firm-specific ones are not, which is a pattern any owner will recognise from their own supplier relationships.
Field Evidence: The Concerts
The strongest non-survey evidence we found.
Sonnabend, H. (2016), Fairness constraints on profit-seeking: evidence from the German club concert industry, Journal of Cultural Economics, 40(4), 529–545[5].
Its abstract: "The results are consistent with the model: Although (1) price dispersion is the dominant pricing strategy in the club concert industry and artists prefer to perform on a Friday or Saturday night, (2) artists do not set higher prices on the weekend. These results are consistent with fairness constraints, but are difficult to explain within a standard profit maximization framework."[5]
A third result is reported: "ticket prices are positively correlated with a city's number of inhabitants."[5]
We obtained the abstract only.
Four observations, ours.
The design is clean. Weekend demand is higher, artists prefer weekends, and prices do not rise on weekends. Three facts, and the third does not follow from the first two under profit maximisation.
The first clause forecloses the obvious defence. Price dispersion is the dominant strategy, so these are not firms that never vary prices. They vary prices and decline to vary them on this particular dimension.
The third result is the sharpest test in the paper and the abstract does not dwell on it. Prices do respond to city size, which is also a demand variable, so the constraint is not a general refusal to price on demand.
And we would state the distinction the authors do not. City size is a persistent structural difference and a weekend is a recurring predictable spike. Charging more in Berlin than in a small town does not violate any reference transaction; charging more on Saturday than on Tuesday does.
Leaving Money On The Table Deliberately
What the concert result implies, which is unusual for this series. Ours.
Three observations.
Most articles here describe an error costing someone money. This one describes firms declining money on purpose, and the paper's own framing is that this is difficult to explain under profit maximisation.
The alternative explanation is not that artists are irrational. It is that the relationship has a value beyond the transaction, and the summary source makes exactly that argument: artists "refrain to exploit the higher expected demand for weekend concerts because they do not want to upset and disappoint their fans"[8].
And that generalises in a specific way the same source names: the mechanism should transfer "to other markets, especially when the traded good establishes a connection between producer and consumer beyond an ordinary buyer-seller relationship."[8] Which describes most professional services and most local businesses.
Who Was Asked, And About Whom
A limitation running through every study here, which we raise because none of our sources does. Ours.
Four observations.
Every respondent was answering as a customer, about a firm they do not own. Nobody in these surveys was asked what they would charge if the shovels were theirs.
That matters because the same person occupies both roles. A business owner buying supplies is a customer; the same owner setting prices is a seller, and this literature measures only one of those positions.
The direction of the likely bias is obvious enough to state. A norm elicited entirely from the party who pays will favour the party who pays, and it is a real question whether sellers asked the same questions would answer the same way.
And we found no study that asked them, which we flag as a gap rather than a defect. The finding is about what customers believe, which is the thing a seller needs to know, so the asymmetry does not undermine it. It does mean the word "fairness" is carrying a normative weight the evidence does not establish.
What Actually Survives
Our reading, stated directly.
Five statements.
The norm is real and consistent. Cost increases may be passed on, demand increases may not, confirmed across five countries and multiple decades.
Hardship amplifies it but does not cause it. Ordinary demand increases were called unfair by 69 percent in the one study that separated them.
Cost justification is conditional, not absolute. Increases attributable to your own choices, or not shared by competitors, are seen as less fair even when genuinely cost-driven.
The link from perception to behaviour is not established. One study found no significant relationship, with switching costs and cumulative cost operating independently of the fairness judgment.
And firms do appear to act on it. The concert evidence shows systematic refusal to price a predictable demand peak, which is behaviour rather than opinion.
Your Price Increases
The first application. Ours, untested, and not pricing advice.
Four points.
The reason matters more than the amount. A 33 percent increase was called unfair when demand caused it; a cost-driven increase was called acceptable by nearly four in five. The same customers, judging price rises.
State the cause, and make sure it is external. The qualification above says increases attributable to your own actions are seen as less fair even when real, so a supplier increase reads differently from a system you chose to buy.
Consider dollar pass-through rather than percentage. The scenario that 79 percent approved held margin dollars flat. Preserving your margin percentage raises margin dollars during a cost shock, and we found no evidence that customers approve of that version.
And the arithmetic gives you room. On our own figures a firm at a 30 percent margin can lose a quarter of its volume on a ten percent rise and still be ahead, so the constraint is a reputational one rather than an immediate financial one.
When Demand Spikes
The second application, and the harder one. Ours.
Four points.
A demand spike is precisely the case the research says you cannot price, and it is precisely the case where pricing is most tempting and most profitable.
The alternatives to raising price are rationing, queuing and waitlists, all of which impose a cost on the customer without transferring it to you. That is economically wasteful and it is what the norm appears to require.
The distinction the concert evidence suggests is persistent versus episodic. Structurally different markets can carry structurally different prices; a recurring predictable peak within one market apparently cannot.
And there is a legitimate route the literature implies without stating. A new offering has no reference transaction, so a premium tier introduced as its own product is not an increase in anything. That is our inference, not a finding.
What To Actually Say
The third application, and the most immediately usable. Ours.
Four points.
The customer cannot verify your costs. In the lettuce scenario the grocer's wholesale increase is stated, not audited, and 79 percent accepted it.
That places a real obligation rather than an opportunity. A stated cost justification that is not true is a straightforward deception, and it works precisely because customers extend credit they cannot check.
The useful form is specific and external. Naming the input, the size of its increase, and the fact that it is industry-wide addresses all three conditions the research identifies.
And the abstract's overlooked clause is worth remembering on the other side. Customers do not appear to require you to pass on cost decreases, so a firm that absorbs increases slowly and keeps decreases is behaving within the norm as measured.
Surge Pricing And The Modern Case
Where this obviously points, and what we can and cannot say. Ours.
Four observations.
Algorithmic pricing that rises with demand is the snow shovel scenario implemented at scale, and the research predicts it will be perceived as unfair.
We obtained no study of surge pricing perceptions and will not extrapolate a finding we do not have. What follows is reasoning, not evidence.
Two things differ from the shovel case and both cut toward acceptance. The variation is disclosed in advance and it is symmetric, meaning prices fall as well as rise, which means the reference transaction is arguably the mechanism rather than any particular price.
And that suggests a testable prediction we cannot test. Announced, symmetric, rule-based variation should attract less objection than a discretionary increase of the same size, because the reference is the rule. We would like to see that studied.
One Asymmetry Worth Noticing
A structural point that emerges from the abstract and is rarely drawn out. Ours.
Three observations.
Costs up: you may raise. Costs down: you may hold. Demand up: you may not raise. Demand down: nothing in the finding requires you to cut.
Three of those four favour the seller, which is a strange result for a literature usually presented as a constraint on business. The norm permits asymmetric pass-through in the firm's direction on the cost dimension entirely.
And the one that binds is narrow but expensive. The single prohibited move is raising price on a demand increase, which is exactly the move that would be most profitable, so the constraint is small in scope and large in value.
What To Do
Give the reason, and check that it is external. A cost-driven increase was called acceptable by 79 percent of respondents; a demand-driven one of similar size was called unfair by 82 percent.
Do not expect cost justification to work if it is your own doing. Increases attributable to the seller's actions, or not shared by competitors, are reported as seen less favourably even when genuinely cost-driven.
Notice which pass-through you are doing. Dollar pass-through holds your margin dollars flat and was the version tested. Percentage pass-through raises margin dollars during a cost shock, and we found no evidence on it.
Run the break-even before assuming a price rise is dangerous. On our own arithmetic a 30 percent margin business can lose a quarter of its units on a ten percent rise and still be ahead.
Treat the perception and the behaviour separately. One study found fairness judgments were not significantly related to behavioural intentions, with switching costs cutting both ways.
Distinguish persistent differences from episodic spikes. The concert evidence shows prices varying with city size and not with the day of the week, which is the same demand variable treated two ways.
Remember the clause nobody quotes. The norm as measured permits holding prices when costs fall, which is an asymmetry in the seller's favour.
Do not use this as a technique. Customers accept stated cost justifications they cannot verify, which makes a false one a deception that works because of the trust the finding documents.
The Limits Of This Analysis
Several caveats matter. This article discusses research on pricing perceptions and is not pricing, marketing or legal advice; price gouging is regulated in some jurisdictions in ways this article does not address, and the applications are our own reasoning and untested. Everything is verified to August 2026. We obtained the 1986 paper's abstract verbatim from four independent sources and did not obtain the body of the paper, so every survey figure here reaches us through a citing academic paper rather than from the original. We obtained none of the confirming studies in Switzerland, Germany, Russia, the United States or the Netherlands, and report all of them through one paper's account; we would particularly like the detail of the 1991 Russian comparison and do not have it. We did not obtain the 1995 hardship study, whose sample of 72 students at one university is the weakest cited here. We obtained the challenge study and the field study as abstracts only; the former describes itself as "a small study" and we did not obtain its sample size, which matters because it carries the most consequential caveat in this article. We did not obtain the study behind the cost-justification qualification and report one sentence describing it. We did not obtain the companion 1986 paper in the Journal of Business. One source is an academic association's blog and one is a personal blog, both flagged at every use; the "cardinal rule" sentence comes from the latter and we could not verify it against the paper. All arithmetic is ours and uses invented figures throughout; the pass-through comparison and the break-even table are standard margin mathematics and no source states any of those numbers. We obtained no study of surge pricing and the section discussing it is explicitly reasoning rather than evidence. And every survey in this article measures stated judgments of hypothetical scenarios, which is a measurement of a norm and not of conduct.
Frequently Asked Questions
What is dual entitlement?
What were the actual numbers?
Is it only about hardship?
Does any of this change behaviour?
Does cost justification always work?
Is there field evidence?
What about surge pricing?
References
- Kahneman, D., Knetsch, J. L., & Thaler, R. (1986). Fairness as a Constraint on Profit Seeking: Entitlements in the Market. The American Economic Review, 76(4), September 1986, 728–741, JSTOR stable URL 1806070. University course copy of the paper reproducing its abstract in full: on community standards of fairness for the setting of prices and wages having been elicited by telephone surveys; on it being acceptable, in customer or labor markets, for a firm to raise prices or cut wages when profits are threatened, and to maintain prices when costs diminish; on it being unfair to exploit shifts in demand by raising prices or cutting wages; and on several market anomalies being explained by assuming that these standards of fairness influence the behavior of firms. Note: a university course copy hosted by an economics department. We obtained the abstract and front matter and did not obtain the body of the paper, so every survey figure in this article reaches us through papers citing it. eml.berkeley.edu
- Academic working paper on pricing under fairness concerns, reproducing survey questions and results from the 1986 paper and surveying the later literature: on the hardware store scenario, being a store selling snow shovels for fifteen dollars that raises the price to twenty the morning after a large snowstorm, with 107 respondents of whom only 18 percent regarded the pricing as acceptable and 82 percent as unfair; on the lettuce scenario at pages 732 to 733 of the original, being a transportation mixup causing a local shortage and a wholesale price 30 cents per head higher than normal, with the grocer raising the customer price by 30 cents per head, and 101 respondents of whom 79 percent regarded the pricing as acceptable and only 21 percent unfair; on subsequent studies confirming and refining the results, including a survey of 1,750 households in Switzerland and Germany by Frey and Pommerehne (1993) confirming that customers dislike price increases involving increased markups, and a comparative survey by Shiller, Boycko and Korobov (1991) of 391 respondents in Russia and 361 in the United States; on Maxwell (1995) asking 72 students at a Florida university about price increases following an ordinary increase in demand versus a hardship-driven one, finding 69 percent and 86 percent respectively judging them unfair, with a substantial majority objecting in each case; and on a survey of 307 Dutch individuals by Gielissen, Dutilh and Graafland (2008) also finding price increases following cost increases to be judged fair. Note: an academic working paper. Our source for every survey figure and question wording in this article; we obtained none of the studies it describes. arxiv.org
- Second university course copy of the same 1986 paper, hosted by a different institution, reproducing the abstract identically and confirming the JSTOR stable URL as 1806070 and the citation as The American Economic Review, September 1986, volume 76, number 4, pages 728–741; together with an economics database record and a journal reference page reproducing the same abstract. Note: three further independent reproductions of the abstract, used to confirm its wording verbatim. web.mit.edu
- Publisher record for All's not fair in pricing: An initial look at the dual entitlement principle, Marketing Letters, reproducing its abstract: on a new theory in economics contending that consumer judgments of seller fairness can explain why sellers in many industries do not raise prices to ration off excess demand; on the authors obtaining, in a small study focusing on automated teller machine fees, empirical support for the prediction that unjustified price increases are perceived as unfair while cost justification legitimates a price increase in consumers' eyes; on the authors also finding, however, that fairness perceptions are not significantly related to behavioral intentions as the theory would suggest; and on many respondents having felt the fee was unfair but would not switch banks because of switching costs, while others felt the fee was fair but would switch banks because of the cumulative cost. Note: the publisher's record. We obtained the abstract only; the authors describe it as a small study and we did not obtain its sample size, which matters because it carries the most consequential caveat in this article. link.springer.com
- Sonnabend, H. (2016). Fairness constraints on profit-seeking: evidence from the German club concert industry. Journal of Cultural Economics, 40(4), 529–545. Publisher record reproducing the abstract: on live music being a performance good that fans attach particular value to, unlike the iconic snow shovel, so that an artist's pricing decision might differ from standard rent-seeking behavior; on the author proposing a model incorporating fairness concerns into the pricing decision for concert tickets and testing its hypotheses on German club concert industry data; on the results being consistent with the model, in that price dispersion is the dominant pricing strategy and artists prefer to perform on a Friday or Saturday night, yet artists do not set higher prices on the weekend; on these results being consistent with fairness constraints but difficult to explain within a standard profit maximization framework; and on ticket prices being positively correlated with a city's number of inhabitants. Together with a repository record for the same paper recording that the 1986 work found price increases involving consumer goods, wages and rents more likely to be found fair when the higher price was necessary to preserve a reference profit, and less likely when it took advantage of increased demand. Note: the publisher's record plus a repository record. We obtained the abstract only and not the paper. link.springer.com
- Reference list carried on an academic preprint, confirming Kahneman, D., Knetsch, J. L. and Thaler, R. H. (1986a), Fairness and the assumptions of economics, Journal of Business, 59(4), S285–S300, JSTOR stable URL 2352761; and Kahneman, D., Knetsch, J. L. and Thaler, R. H. (1986b), Fairness as a constraint on profit seeking: Entitlements in the market, The American Economic Review, 76(4), 728–741, JSTOR stable URL 1806070. Note: a reference list, used to confirm the companion paper's citation independently. We did not obtain the companion paper. arxiv.org
- Academic preprint on simulating economic agents, section on fairness as a constraint on profit-seeking, reproducing the snow shovel vignette and the exact response scale offered to respondents, being very unfair, unfair, acceptable, and completely fair; and recording that about 82 percent of subjects responded either unfair or very unfair. Note: an academic preprint. Our source for the verbatim four-point response scale, which matters because the reported 82 percent figure combines the two unfavourable options. arxiv.org
- Cultural economics association blog article on fairness considerations in the live music industry, written by the author of the 2016 study, recording that the 1986 authors found norms of fairness linked with reference transactions, being a reference profit for sellers and a reference price for buyers; that their dual entitlement principle declares it perceived as unfair to exploit increased market power while an adjustment to increased costs is considered fair; that there seems to be a willingness to punish unfair pricing behavior in terms of boycotts or protests; that artists refrain from exploiting higher expected weekend demand because they do not want to upset and disappoint their fans; and that there is reason to believe the mechanism can transfer to other markets, especially where the traded good establishes a connection between producer and consumer beyond an ordinary buyer-seller relationship. Note: an academic association's blog, not a peer-reviewed source, flagged at every use. Written by the field study's own author, so the interpretive claims are his rather than independent. culturaleconomics.org
- Personal economics blog post discussing the 1986 paper, recording that most respondents thought it acceptable for a grocer to pass on a wholesale price increase but not to raise prices because of a general shortage where the grocer had the only shipment; quoting the authors' summary that the cardinal rule of fairness is surely that one person should not achieve a gain by simply imposing an equivalent loss on another; and recording that in 1986, 82 percent of respondents thought the snow shovel increase unfair. Note: a personal blog, not an academic source, flagged at every use. Our only source for the cardinal rule sentence, which we could not verify against the paper itself. baselinescenario.com
- Repository page for the 1986 paper carrying scholarly citing text, recording that survey studies of attitudes toward pricing in retail markets have reported that respondents do not consider it fair for a firm to increase prices and profits when there is a short-run change in the economic environment not justified by a cost increase; and recording that when competitors' prices stay the same, or when the cost increase is directly attributable to the seller's actions, even cost-justified price increases are seen as less fair, with implications for managers and policymakers discussed. Note: a repository page reproducing text from a citing paper. Our source for the qualification on cost justification; we did not obtain the study it describes. academia.edu
This article discusses research on pricing perceptions and is not pricing, marketing or legal advice; price gouging is regulated in some jurisdictions in ways not addressed here. The body of the 1986 paper was not obtained and all survey figures reach this article through citing papers. None of the confirming studies was obtained. The challenge study and field study were obtained as abstracts only. One source is an academic association's blog and one a personal blog, both flagged at every use. All arithmetic is the authors' own and uses invented figures. Every survey cited measures stated judgments of hypothetical scenarios, which is a measurement of a norm rather than of conduct.