Price Fairness

What it is

The evidence is a series of studies by Lisa Bolton, Luk Warlop and Joseph Alba in the Journal of Consumer Research in 2003, and the baseline they report is unflattering to both sides.

Consumers are inclined to believe that the selling price of a good or service is substantially higher than its fair price. They are sensitive to several reference points, past prices, competitor prices and cost of goods sold, so the belief is not formed in ignorance of price information. But they underestimate the effects of inflation, overattribute price differences to profit, and fail to take into account the full range of a vendor's costs.

Then the finding with the most practical consequence and the least circulation. The corrective interventions the authors tested, supplying historical price information, explaining why a price differs, cueing the costs involved, were only modestly effective.

In effect

For a seller this makes the standard response to a pricing complaint close to futile. Explaining the cost base addresses the content of the belief, and content is the dimension the evidence says barely moves.

For a buyer it is a reason to be suspicious of your own suspicion. The study establishes that the fairness judgement is systematically biased in a particular direction, which means a strong feeling that a price is unfair is weak evidence that it is.

The idea is much older than the measurement. Stuart Chase and Frederick Schlink argued in 1927 that mass production had severed the buyer from any means of knowing what they were buying, which is the condition under which a suspicion like this becomes both rational and uncorrectable.

What it does not say

It does not say consumers are wrong about any particular price. It describes a systematic direction of error in aggregate, not a verdict on a case.

It does not say information is inert. People were sensitive to price reference points. Corrective interventions were modestly effective, which is not the same as ineffective, and describing it as inertness overstates it.

And it is twenty years old, which matters here more than usual, because it was established in a world without the screenshot and before prices were routinely discussed in public.

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