Scales of Justice Balancing Price Hikes During Pandemic

Price Gouging in the Pandemic: Are We Fairly Judging Price Hikes?

Kai Mendoza in Business & Economy May 2025 • 4 min read.

"Explore how perceptions of fairness affect our acceptance of price increases during crises, revealing surprising insights into consumer behavior and economic principles."

The COVID-19 pandemic brought more than just health concerns; it also triggered significant economic shifts, including noticeable price increases on everyday goods. As consumers, we often react strongly to these changes, labeling some as unfair or even exploitative. But how much of this reaction is based on a rational understanding of market forces, and how much is driven by our inherent sense of fairness?

New research dives into these questions, exploring how consumers in the U.S. and Israel perceived price hikes during the pandemic. The study, titled "Price Gouging or Market Forces? Fairness Perceptions of Price Hikes in the Pandemic," investigates the factors that influence our acceptance of rising prices, focusing on whether we attribute them to legitimate cost increases or opportunistic demand exploitation.

By understanding these perceptions, we can gain valuable insights into consumer behavior, market dynamics, and the ethical considerations that shape our economic landscape. Let's explore the key findings of this study and uncover the complex interplay between price, fairness, and public sentiment.

Why Do We Get So Mad About Price Increases?

Scales of Justice Balancing Price Hikes During Pandemic

At the heart of the matter lies a concept called "dual entitlement," which suggests that consumers feel entitled to their established transaction terms, while firms are expected to maintain their reference profits. When prices surge unexpectedly, it violates this sense of entitlement, leading to feelings of unfairness and resentment. But this is just the beginning.

The research identifies several factors that influence whether we perceive a price increase as fair:

The Reason Behind the Hike: Is it due to increased costs for the seller (like supply chain issues) or simply because they know people are willing to pay more (increased demand)?
The Type of Product: Are we talking about essential goods, like face masks or hand sanitizer, or more discretionary items?
Where You Live: Cultural and economic factors can significantly impact how people perceive price changes.

Interestingly, the study found that people are generally more accepting of price increases when they're attributed to cost increases rather than demand surges. This aligns with the dual-entitlement principle – we're more understanding when businesses face higher costs, but less so when they seem to be taking advantage of a crisis.

What Does This Mean for Businesses and Consumers?

Understanding how consumers perceive price increases is crucial for businesses navigating economic fluctuations. Transparency about cost increases and avoiding the appearance of opportunistic pricing can help maintain customer trust and loyalty. For consumers, recognizing the complexities of market dynamics can lead to more informed and rational purchasing decisions, even during times of crisis. While our sense of fairness is a powerful motivator, a deeper understanding of economic principles can help us navigate the world of pricing with greater awareness and less outrage.

Everything You Need To Know

What is 'dual entitlement,' and why is it important in understanding consumer reactions to price increases?

The term "dual entitlement" refers to the consumer expectation of consistent transaction terms and the firm's expectation to maintain standard profits. Unexpected price surges can violate this, leading to perceptions of unfairness. This is important because it highlights the psychological contract between businesses and consumers, influencing consumer reactions to price changes. Businesses that ignore dual entitlement risk alienating customers, while understanding it can inform pricing strategies and communication during crises. Factors like the reason for the price hike, the type of product, and regional economics further shape these perceptions.

What are the main factors that influence whether people view a price increase as fair or unfair?

Several factors determine whether consumers see a price increase as fair. The reasons for the hike are critical: cost increases are usually more acceptable than demand surges. The type of product also matters, with essential goods scrutinized more closely. Finally, regional economic factors and culture play a role. These elements impact consumer behavior because they frame whether the price increase seems justified or exploitative, influencing purchasing decisions and brand loyalty. For instance, price increases for face masks during a pandemic might be perceived differently across different countries.

What can businesses do to manage consumer perceptions of price increases, and how can consumers make more informed decisions?

Transparency about cost increases and avoiding the appearance of opportunistic pricing are vital for maintaining customer trust. Businesses need to consider perceptions of fairness when making pricing decisions, especially during crises. Consumers can make more rational decisions by recognizing market dynamics. Understanding these principles can help businesses navigate economic fluctuations without alienating their customer base and can lead consumers to make informed choices based on a more comprehensive view of the market forces at play.

According to the research, are people more accepting of price increases due to cost increases or demand surges? Why?

The research indicates that people generally accept price increases attributed to higher costs for the seller more readily than those due to increased demand. This is because cost increases align with the principle of dual entitlement, where businesses are seen as entitled to maintain their profit margins when faced with higher expenses. However, when price hikes appear to exploit high demand, they violate the consumer's sense of entitlement to stable prices, leading to outrage and perceptions of price gouging. This distinction affects consumer behavior by influencing whether they perceive the price as justified or exploitative.

How did the COVID-19 pandemic affect price gouging, and how did this impact consumer behavior?

The COVID-19 pandemic led to economic shifts, including price increases on everyday goods. Consumers often perceive some price increases as unfair or exploitative. This matters because perceptions of fairness affect consumer behavior. The study examines fairness, supply, and demand to reveal why some price hikes outrage consumers while others seem acceptable. For example, increased demand for hand sanitizer might lead to price increases, and consumers' reactions will depend on whether they attribute the increase to supply chain issues (a cost increase) or opportunistic behavior (exploiting demand).