When Goliath sells to David: explaining price gouging perceptions through power

Abstract

External shocks (e.g., due to a pandemic) may lead to price jumps in the short term. Rather than being read as a signal of increased scarcity, the resulting “price gouging” is often ascribed to sellers’ selfish exploitation of the crisis. In our experimental study, we investigate the drivers of fairness perceptions regarding voluntary transactions in situations of increased scarcity and explore how they pertain to the economic policy debate on price gouging restrictions. Departing from previous research, our results show that perceptions of power, not of the seller as the profiteer (mercantilism), drive fairness perceptions. The more powerful a transaction partner is assumed to be, the less the respective transaction is regarded as fair. In line with the literature, we also find that fairness perceptions are correlated with zero-sum thinking (i.e., a denial of the mutuality of benefits implied by voluntary transactions). Our study helps to better understand why some market regulations appear attractive despite suboptimal outcomes, thus revealing a mixing of the micro and the macro cosmos, against which Hayek warned. By casting a light on the psychological mechanisms behind attitudes toward markets, we aim to improve the assessment of legitimacy issues and contribute to explaining (and overcoming) the moral paradox of modernity.