Study finds moral costs in over-pricing for essentials

When companies hike prices on essentials like food, medicine, or medical devices, the financial rewards may be immediate-but the reputational damage may linger and ultimately cost more in the long run.

That's the finding of a study led by UC Riverside School of Business professor Margaret C. Campbell. Consumers, the research shows, judge prices for essential goods and services not just through the lens of supply and demand, but also through their sense of morality.

"If companies are perceived as taking advantage of vulnerable people-like the elderly or the uninsured-they may make short-term profits but suffer long-term damage to their brand," said Campbell, an associate dean, chair of the marketing department, and Anderson Presidential Chair.

"People stop wanting to do business with companies they see as acting unfairly," she said.

The study, however, also found this moral judgment doesn't apply to goods and services seen as non-essential for consumers. If not being able to afford the product doesn't cause harm, fairness isn't a real concern.

Published in the Journal of Consumer Research, Campbell's study introduces what she and her co-authors call the "moral harm model of price fairness." Drawing on eight controlled experiments with more than 3,000 participants, the researchers examined how people perceive price fairness not just economically, but ethically.

Their findings suggest a simple price tag can provoke complex reactions-especially when the product is important for consumer well-being.

"We found that consumers perceive harm when prices restrict access to a necessary product," Campbell said. "And when people perceive harm, they judge the pricing as immoral-even if the price follows basic supply and demand."

For instance, a high price on hearing aids can be seen as far more unfair than a similar price on diamond earrings. The difference? Hearing aids are often necessary for basic functioning and social connection, whereas forgoing jewelry doesn't cause harm.

To quantify the hidden costs of high prices for essential products or to vulnerable consumers, the research team developed a novel metric called "inferred harm." This measure captures the psychological and welfare loss consumers infer from a price perceived as unfair.

The study also found that consumers perceive unfairness not just in price hikes, but in static pricing when production costs fall. Companies were often seen as acting immorally by failing to lower prices when they could.

In one experiment, participants were told about prices for eyeglasses. When they learned that a firm providing glasses kept the same prices when their costs decreased, many participants thought this pricing was unfair.

"People think it is unfair to keep the same price when costs decrease for products like eyeglasses that are important for consumer well-being because the firm could afford to charge a lower price," Campbell said.

A follow-up experiment found that participants perceived the optometry firm's decision to keep prices the same-despite reduced production costs-as even more harmful when the firm served financially vulnerable customers in a low-income community.

Another experiment placed participants in the role of retailers and found they were willing to lower prices for more vulnerable customers, even at the expense of their own profits. In yet another experiment, participants judged it fair to offer lower prices specifically to vulnerable groups-such as through senior citizen discounts-even when that meant charging higher prices to other consumers, including themselves.

The researchers argue that moral perceptions of pricing can lead to serious consequences, including reputational harm, reduced customer loyalty, and even government intervention. In some cases, legislation has been proposed in response to prices perceived as excessively high for essential goods.

"There's a real risk for companies that ignore this," she said. "Beyond losing customers, they may also invite regulatory scrutiny."

Interestingly, the research also found that lowering prices on harmful or addictive goods-such as alcohol or tobacco-can backfire if seen as encouraging overuse in vulnerable communities.

"Promoting high-alcohol beverages in low-income neighborhoods doesn't come across as generous," Campbell said. "It comes across as harmful."

Campbell said real-world controversies partly inspired the research-such as the pricing of insulin, hearing aids, and the EpiPen, a medical device used to treat life-threatening allergic reactions. The pharmaceutical company Mylan (now part of Viatris Inc.) sparked national outrage in 2016 when it raised the price of a two-pack of EpiPens from $100 to $600.

That backlash led to congressional hearings, lawsuits, and hundreds of millions of dollars in settlements. Mylan later released a generic version at a much lower cost to quell the controversy.

Titled "Painful prices: the moral harm model of price fairness," the study was co-authored by Justin Pomerance of the University of New Hampshire and Erin Percival Carter of the University of Maine.

So, what should companies take away from this?

"If your customers feel you're harming people-or failing to help them when you could-they'll turn away," Campbell said. "Fairness is about more than numbers. It's about values."

Header image: A woman diserns prices at a grocery store (Getty Images)