Price Gouging or Market Forces? Fairness Perceptions of Price Hikes during the Pandemic

Abstract: When and under what circumstances might people interpret a price increase as fair and acceptable is an important question in behavioral economics. We report the results of surveys we conducted in the US and Israel in 2020, a time when many prices increased following the spread of the COVID-19 pandemic. To assess respondents’ fairness perceptions of price increases, we focus on goods whose prices have increased during the pandemic, including some essential goods. Consistent with the principle of dual entitlement, we find that respondents perceive price increases as fairer if they are due to cost shocks than if they are due to demand shocks. However, we also find large differences across the two populations, as well as across goods. 

JEL Codes: E70, E31, D90, M31 

Key Words: Dual Entitlement, Fairness Perceptions, Consumer Antagonism, COVID-19, Pandemic, Price Level, Price Adjustment, Price Increase, Price Rigidity, Sticky Prices