Why is €100 for a bottle of hand sanitiser not an acceptable price?

Hand sanitiser was one of the products that experienced a steep spike in demand in several countries at the moment of the corona outbreak, which led to stock ruptures. Some opportunistic merchants saw an opportunity and started selling (online) at a multiple of the original price – but retailers and authorities undertook actions to stop these types of practices.

On retail website bol.com, a bottle of hand sanitiser, normally priced at €0.80, was offered by an external party for €19.50. In the UK, an online merchant even proposed £109.99 instead of the £3.49 original price … and Amazon threw their advertisements off its platform. Yes – Amazon does have a ‘fair price’ policy, and “setting a price on a product or service that is significantly higher than recent prices offered” can lead to removal of the offer. In Antwerp, the police confiscated sanitisers that were being sold in a newspaper store and gave them to a hospital.

Why are these types of price increases perceived as unfair?

In a classical experiment, Noble Prize Winner Richard H. Thaler tested the customers’ reactions when a snow shovel vendor raised the price for the snow shovels from $15 to $20 after a large snowstorm. A vast majority (82%) of the respondents found this unfair. The same kind of negative reaction was triggered when Coca-Cola experimented with changing the price of their beverages in the vending machine in function of the temperature!

On the other hand, many people accept that ‘last minute’ airfare prices are more expensive or that you pay more for a Uber taxi ride when demand is higher (e.g. when the concert finishes). In the case of Uber, they try to match supply and demand with ‘surge’ pricing: offering higher prices to attract more drivers.

The difference in reaction between the hand sanitiser and the snow shovel examples on the one hand and the plane tickets and Uber examples on the other might find its origin in the distinction between the concepts of ‘procedural justice’ and ‘distributive justice’ stemming from law and psychology.

Procedural justice concerns the fairness of the process for coming to a certain decision or outcome. Distributive justice is about the fairness of the outcome of that process. In the case of a court trial, this is the difference between the trial (the process) and the verdict (the outcome). The reaction of the accused is influenced by the fairness of both the process and the outcome. Applying this distinction to the pricing cases, think about the difference between the reason and the process behind the price increase (procedural justice) versus the actual price increase (distributive justice)1. People accept price increases when they are the result of factors external to the seller – like increased costs – and when increases are not intended to take advantage of a certain situation like an increase in market power2. If the sanitiser price increase would have been based on a cost increase, the customer reactions would probably have been less fierce.

In general, pricing is not seen as a fair allocation mechanism for distributing scarce goods. For instance, people prefer queuing rather than auctioning to distribute football tickets when demand is higher than supply3. Relating this logic to Uber’s surge pricing: in general, during busy moments it is fairly well accepted that the price is higher, also because it is understood that the drivers are paid more during these moments. But when the taxi price increased after the terrorist attacks in London, there was a major backlash because it took too long to ‘turn off’ the surge pricing mechanism.

A major health crisis is not a good moment to increase the prices of scarce goods in order to boost profits, unless there is a substantial reason beyond the supplier’s control for raising the price. Fairness, transparency and consistency are of utmost importance when implementing any price increase, and even more so in this particular case.

1 Ferguson, J. L., Ellen, P. S., & Bearden, W. O. (2014). Procedural and distributive fairness: Determinants of overall price fairness. Journal of business ethics, 121(2), 217-231.
2 Ferguson, J. L., Ellen, P. S., & Bearden, W. O. (2014). Procedural and distributive fairness: Determinants of overall price fairness. Journal of business ethics, 121(2), 217-231.
3 Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1986). Fairness and the assumptions of economics. Journal of business, S285-S300.

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